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The Honolulu Advertiser
Posted on: Thursday, April 3, 2008

Colleges profiting on debit cards

By Kathy Chu
USA Today

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Universities and colleges have been profiting off credit card promotions for many years. Now debit card deals are also bringing in cash — but, some say, at students’ expense.

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The ID card at Portland State University in Oregon has long been the key to campus life, allowing students to check out books, get into buildings and access their meal plans. A few years ago, the school created another use for the IDs: buying books and school supplies.

Students just had to activate their ID as a debit card by opening a bank account promoted by the university. The school, under an exclusive deal with a bank, earned money when students swiped their cards and signed for a purchase. It also profited on money students kept in their accounts.

Hundreds of students protested, angry that the school was promoting a bank account they felt cost students more than other banking options. Their objections are being echoed by a growing number of consumer groups and college students across the nation. They argue that universities are profiting at students' expense through exclusive debit card and checking account deals that can net a school hundreds of thousands of dollars a year.

"I'm not an angry long-haired hippie against corporations," says Ryan Klute, 25, a graduate student at Portland State. "But it's a bad idea when the university and the company have a vested interest in you spending your money so they can make money off you." New York Attorney General Andrew Cuomo, who investigated the student-loan industry last year, has begun examining debit card relationships between colleges and banks, his office said late last week.

Cuomo's inquiry into student-loan providers led to changes within a system in which major colleges apparently received financial perks for touting lenders that didn't necessarily offer the best deals for students.

Banks have long pitched credit cards on campuses through exclusive deals with university alumni and athletic groups. Debit card partnerships have become the next frontier.

One major reason is that debit card use is growing faster than credit card use, and young adults have proven especially willing to embrace the financial industry's push for cashless payments.

Students also tend to be short on cash. That makes them a reliable source of fees for banks, which charge up to $38 each time consumers overdraw their accounts. There's another factor, too: Banks want to forge ties with students that will last well beyond the college years.

"You'd hope that if we have established a relationship with an individual in college, when they go to buy the first car, their first house, they would think of us," says Steve Dale, a spokesman for U.S. Bank, which has partnered with 28 colleges to issue ID cards that can double as debit cards.

Such deals are particularly attractive to public universities facing severe cuts in state funding. That helps explain why, even as some colleges limit credit card marketing on campus, they still let banks pitch accounts and debit cards to students.