New tactics keep college kids hooked on plastic

New tactics keep college kids hooked on plastic

But debit cards are much more common, with nearly 80 percent of students carrying them, the Sallie Mae survey found. Those cards sometimes are on the back side of a student’s ID card. Prepaid cards are also gaining favor, partly because they enable parents to control their children’s spending. The problem is, those cards don’t allow students to build a credit record, and they have fewer marketing restrictions.

(Read more: Credit cards for college kids? Pick your poison)

A study by U.S. PIRG found that “in the wake of restrictions to credit card marketing and student loan reform, the next financial frontier for banks and financial firms has been that [of] growing business of marketing campus debit and prepaid cards and offering incentives to schools to outsource or privatize various financial and administrative functions.”

(Read more: Should college students have credit cards?)

The Ohio State University is a case in point. Last year it signed an agreement in which Huntington Bank agreed to pay the school $ 25 million upfront and commit another $ 100 million in loans and investments for campus projects in exchange for becoming OSU’s “official consumer bank.”

Huntington also gained access to a database of about 600,000 people with a connection to the university, which receives incentive payments when people sign up for accounts.

OSU Chief Financial Officer Geoffrey Chatas called the agreement “a true win for students, faculty and staff.” And the undergraduate student president, Nick Messenger, told The Columbus Dispatch that the account terms looked very competitive.

That may be, but members of Congress have voiced concern that many banks are not offering the best terms in these campus deals. Several Democratic members of the House and Senate sent a letter late last month to several banks with campus deals expressing concern about who benefits from those deals and asking for details.

But competitive terms aren’t necessarily the point, according to Meghan Johnson, a sophomore at Iowa State University. Johnson chose not to switch from her old bank account to one with U.S. Bank, which has a partnership with ISU.

“I remember feeling almost obligated to, though, at my orientation,” she said. “We even went to kind of a meeting about it and they told us all the benefits.”

Johnson says the terms of the U.S. Bank accounts are “not the worst thing in the world,” but colleges and universities have their priorities wrong.

“Credit cards and debit cards are not essential to the learning that we came to campus to do, so why are colleges offering them?” she said in comments to the CFPB panel. “We are at college to learn and to better ourselves for the future, not to be marketed to by banks and credit card companies.”

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