Students heading to college this fall should look beyond debit and credit cards they may be offered on campus, particularly those that sport a school’s logo. They’re not always the best deal, and some can be downright losers.
While arrangements between financial and educational institutions can be lucrative, they may exact a toll on students. For example, the Federal Deposit Insurance Corp. forced one card servicer, Higher One, to refund $11 million of improper overdraft charges on OneAccount debit cards used by about 60,000 students in 2012. The U.S. Government Accountability Office said Higher One imposed an extra cost of 50 cents for each purchase that used a personal identification number rather than a signature, pointing out that “mainstream debit cards typically do not charge” such fees.
“Many times, affiliating the school, logo and mascot is simply a marketing ploy to get the student interested,” says Adam Koos, a certified financial planner in Columbus, Ohio. Such “affinity marketing” techniques have declined in recent years, after legal reforms in 2009 imposed new rules regulating on-campus sales of credit cards and other financial products. Since then, the number of undergraduates holding such cards has been cut in half, according to the U.S. Government Accountability Office.
Still, the Consumer Financial Protection Bureau issued a warning last month to students to inspect the fine print of any advertising from on-campus financial services providers before signing up in order to avoid unexpected fees. The agency cited the 14 Big Ten universities as an example, noting that out of 11 with contractual relationships with credit and debit card providers, only four financial partners made it easy to find descriptions of the agreements on their websites, and three of those left out crucial details.
Without the details, it’s hard to find the best deals by comparing fees of school partners with those charged for similar services by unaffiliated financial institutions. In its February report on college debit cards, the GAO found the charges usually were the same or slightly higher than those imposed by nonaffiliated banks or credit unions. Of about 7,600 educational institutions participating in federal student aid programs, 852 had agreements for debit or prepaid cards, which most used to distribute financial aid and other payments to students.
These arrangements often saved administrative costs and sometimes brought the school revenue. They could also benefit students, through quicker access to funds and basic services like ATM withdrawals. For most undergrads, using ATMs at low or no cost is a critical feature, but one that varies widely from school to school. On many campuses, there are few ATMs and access is so poor that lines 20 to 40 people deep are common, the GAO reported.
After the 2009 reforms took effect, most credit card issuers with affinity marketing agreements stopped soliciting undergrads and mainly focused on alumni. But some still do try to put their plastic in the hands of the youngest campus denizens.
When evaluating a debit or credit card offer, undergrads should consider things such as ATM access and fees while resisting the lure of mascot marketing, says Adam Jordan, director of investment research and management at Paul R. Ried Financial Group, an asset manager and advisory firm in Bellevue, Washington.
“If you need a credit card, take the time to go online and do a thorough comparison of what is available,” Jordan says. And forget freebies like the logo-sporting coffee cup — the agreement’s terms could easily cost more than the same cup at the campus bookstore.
Ultimately, there’s nothing wrong with signing up for a credit card when you’re in college, Koos says. “Building credit is an important part of leaving your parents’ house, growing up and getting out on your own someday,” he says. “Students should just be careful to check the interest rate and pay no more than 13 percent annually — and then if they do use the card, be sure to pay it off each month versus racking up a balance.”
While undergrads need to make sure they earn enough course credits, they should also start thinking about credit scores. Using credit responsibly helps build and burnish a user’s risk profile, which can lead to lower interest rates on future loans and larger lines of credit.
But having the school’s mascot emblazoned on your plastic won’t make any difference.
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Freshmen Beware: That Mascot-Bearing Credit Card May Be a Loser originally appeared on usnews.com
