When students use credit cards sporting the iconic block ‘M’, they’re supporting more than just school spirit — they’re also supporting a profitable relationship between the University of Michigan’s Alumni Association and Bank of America worth $25.5 million.

Under an 11-year contract, which started in June 2003, the Alumni Association provides Bank of America with student and alumni information, and in return the Alumni Association reaps revenue based on the number of credit card accounts that are opened.

Although the Alumni Association says the contract is directed at University of Michigan alumni and not solely at students, the association makes $25,000 per year from student accounts. Other schools across the country have similar credit cards deals, which have come under review from Congress and from critics who argue that such accounts are a contributing factor to rising student credit card debt.

DEFENDING THE CONTRACT

Jerry Sigler, senior vice president and chief financial officer of the University’s Alumni Association, defended the contract with Bank of America, saying that the association puts more funds into student programming and scholarships than the amount of money generated from students opening credit card accounts.

Sigler said there are 70,000 alumni accounts opened under the contract, and only 1,500 student accounts. From these 1,500 student accounts, the University receives $25,000 per year.

Last year, Sigler said the Alumni Association put $650,000 into 370 scholarships and funds for students from the $2.5 million it generated from the affinity program — an agreement between the bank and university that includes Bank of America credit cards trademarked with the University’s logo. As part of the contract, the Alumni Association is paid royalties from Bank of America, including 0.5 percent of retail purchases made by each credit card account.

“In terms of that credit card revenue, we’re probably reinvesting in student programs 20 times what we earned last year from student credit cards,” Sigler said. “I get frustrated with the implication that we’re making millions of dollars off students. We’re making very little and supporting significantly in supporting and funding students.”

Sigler added that the Alumni Association, a non-profit organization, puts an additional $50,000 into the Division of Student Affairs to fund leadership training and credit-related emergency loans.

The University’s Athletic Department is also included in the affinity agreement. Bank of America is the only credit card company allowed to advertise at University sporting events.

Under the affinity program, Marty Bodnar, associate athletic director for ticketing services, said the Athletic Department mkes $425,000 per year.

FINANCIAL RESPONSIBILITY

Christine Lindstrom, higher education director of the U.S. Public Interest Research Groups’s Higher Education Debt Project, said credit card companies’ advertising on college campuses have made students vulnerable targets for these companies.

“It creates a marketplace on campus for students, who tend to be new consumers in the marketplace, and as a result are less exposed to a variety of schemes and tricks that might be layered in particular,” Lindstrom said. “Our stance is we’d like to see the marketplace cleaned up on campus and for students to have the ability to control whether they’re marketed to in the sharing of information.”

Lindstrom, who testified at a June 2008 U.S. Congressional hearing on credit card marketing on college campuses, said there are two factors contributing to student debt: credit card companies targeting vulnerable populations and students’ need to rely on credit lines to pay for their education and other expenses.

“Students have seen a need to rely on their credit cards to pay for student needs — textbooks, transportation and even tuition,” Linstrom said. “Target marketing and needing to rely on lines of credit to pay for basic educational costs are contributing to an increase in student debt once they graduate.”

Betty Riess, a spokeswoman for Bank of America, said the company tries to promote financial responsibility among student cardholders. Reiss said Bank of America has special terms and fees for student accounts, including lines of credit for students that start at $500 and are capped at $2,500

Currently, Bank of America has about 700 affinity agreements with universities across the country, but Riess said she could not discuss individual contracts.

She said the purpose of the affinity card is to provide a way for alumni and fans to show support for the school, and added that the program is not targeted at students, who account for only two percent of all open accounts nationally.

“Our objective is to build a long-term relationship and provide them with the tools they need to start establishing a credit history that enables them to achieve longer-term financial goals,” Riess said.

CURBING STUDENT DEBT

Despite the credit card program, the University doesn’t allow students to pay for tuition with credit cards, according Pamela Fowler, executive director of the University’s Office of Financial Aid.

Prohibiting credit card tuition payment prevents students from charging large sums of educational expenses and driving them into credit card debt, Fowler said.

She added that although students cannot request loans based on credit card debt, it is sometimes inferred as the reason for some students applying for financial aid.

Fowler said some of the practices of the Alumni Association, like this contract, while fair from the viewpoint of the association, often end up negatively affecting students.

“Sometimes I think they don’t think it all the way through — that some of what they do can bleed over into currently enrolled students,” Fowler said.

Fowler also said the Office of Financial Aid is trying to educate students about managing their finances — something that is also a priority for the Alumni Association, according to Sigler.

“We believe that managing finances and credit is as much a part of the education and maturation process that takes place during the college experience,” Sigler said. “We believe that students should not be insulated from credit and other things that are part of the real world of finances.”

Sigler added that Bank of America is not looking to prey on naïve students or run them into credit card debt. Instead, he said the company is working to create long-term relationships with them as customers.

“They want you to have that card and manage your credit responsibly, by working with us and making responsible credit education,” Sigler said.

STUDENTS TAKE ON CREDIT

According to U.S. PIRG’s Campus Credit Card Trap — a survey taken from October 2007 to February 2008 — credit cards and banks regularly target college students with aggressive marketing tactics.

According to the survey, 66 percent of students have at least one credit card, 55 percent of students reported using the card to buy books and 24 percent of students reported paying for their college tuitions using their credit cards.

Sixty-seven percent of students opposed sharing of student information with credit card companies, the survey found.

LSA junior A.J. Huber, who opened an affinity card with Bank of America in May 2007, said he was unaware of the contract between the Alumni Association and the bank, but that it doesn’t bother him. Huber said he would rather see some of the money from his credit card account support the University rather than just the credit card company.

Huber, who was solicited by Bank of America through the mail, said he wanted his own card to build his credit history. He added that although credit card companies’ targeting of students may contribute to rising debt, students need to learn how to handle their credit responsibly and should not be exempt from the world of managing finances.

“To say that students are unable to manage their own spending is patronizing,” Huber said. “While it is true that some students will spend irresponsibly, that is also true with many older adults. Cutting off access to credit, especially considering the credit crunch in today’s market, will only hurt students.”

Listed in the University’s directory, Huber’s name was provided to Bank of America as part of the credit contract. Students may remove their names from the directory, which is public and accessible online at any time.

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