Colleges Lose Money on New Credit Card Rules

In the wake of the 2009 Credit Card Act, also known as CARD, colleges and universities have felt a dramatic drop in their income from their school-affiliated credit cards. The Federal Reserve recently reported that the total number of credit cards issued through colleges and universities fell 17 percent in 2010. In terms of income, schools earned $73 million in 2010 from these marketing deals, a 13 percent drop from $84 million in 2009, according to Bankrate.com.

The decline in sign-ups for these cards is attributed to the new rules put in place in February 2010, including a major one that prohibits card issuers from giving credit lines to anyone under age 21 without a co-signer, or proof of adequate income. Some companies, like Citi, will not even allow for a co-signer, but will only accept consumers based on their current ability to repay. And with a large portion of students under the age of 21 and most of the rest without substantial income, its easy to see why the credit card business is not flourishing for schools now as it once did.

“I’m not surprised the [sign-up level] has dropped, they aren’t getting the kind of revenue they were before,” Beverly Blair Harzog, credit card expert for Credit.com said as quoted in a FoxBusiness article. “They used to be able to profit from the randomness of recruiting on-campus. Now you can’t sign up on the street any more, you need to prove you have the income to pay your bills.”

Of course there were a few schools who still saw some major profits last year from these credit card deals. The 70,060 Penn State University alumni with school-affiliated cards charged enough to earn their alma mater $4.99 million in 2010. Another 19 schools made more than $1 million in revenue from their card deals last year.

Still, the overall trend is likely a good thing for students. Fewer students with credit cards means less debt, especially as the expected average student loan debt has been pegged at a record $29,000 for 2010 by the Department of Education. The CARD act has probably been a harsh financial wake-up call to many students as they try to make their way through higher education.