Good Student Credit Should Be A Corporate Social
Responsibility
Author: Stuart Nachbar

The March 18 USA Today had an interesting cover story in
education politics: Colleges' debit card deals draw scrutiny.

The purpose of these deals is to foster computerized cashless
transactions on-campus, for example purchasing books, meals or
tickets to athletic events through a debit card that doubles as
a student ID. The students account balance may include monies
received through financial aid. Under the agreements between the
banks and schools, the schools receive revenue — up to $1
million or so a year — each time a student uses the card in an
on-campus transaction.

The USA Today story alluded that the debit cards may be a good
deal for the school, but not necessarily the best deal for the
students, especially when it comes to overdraft fees. The
article cites the a study by the Center for Responsible Lending,
a consumer advocacy group that states that young adults ages
18-24 pay, on average, more than $3 in fees for every $1
overdrawn, compared with nearly $2 in fees paid by other adults.


The overdraft practices are reminiscent of the predatory
practices of banks in their relationships with low-income
customers: to levy the highest penalties on the customers who
can least afford them. It is disappointing to see colleges buy
into these practices, but easy to understand why: they have an
opportunity to outsource transaction processing and student ID
records to an outside provider. It is a means for an educational
institution to turn a cost center into a revenue center.

The student debit card programs have become the latest higher
education cause for New York Attorney General Andrew Cuomo,
following a successful investigation into the student loan
lending practices of banks that among other things, offered
perks to financial aid officers to direct students to use their
products. Cuomo's investigation is only in its infancy, but the
attorney general's office is concerned about excessively high
overdraft fees, and that banks may use their relationships with
schools to pitch high-interest credit cards to their students.

Unless Cuomo's investigation finds new evidence of kickbacks to
school officials, solutions to the problems of student debit
cards can be worked out between the schools and banks without
government intervention.

One solution is to not allow students to overdraw their
account. The systems at the point of sale could tell a cashier
or the bursar that the student has insufficient funds; a balance
check would be unnecessary. This will work if a second solution
is in place: student deposits clear in one day, instead of the
usual three at most money center banks. Commerce Bank is one
financial institution that markets such a service to competitive
advantage.

Spokespersons for the banks and their associations have argued
that the overdraft penalties force college students to manage
their money responsibly. I would argue that preventing
overdrafts will do the same, without putting students further
behind the financial eight-ball or encouraging them to live
beyond their means. They would also learn to have cash on hand
for their coffees and mocha lattes.

My proposed solutions could be considered corporate social
responsibility on the part of the banks and schools. No doubt
it's in their best interest for students to graduate with better
credit and more income to repay student loans.


About The Author: Contact Stuart Nachbar at
http://www.EducatedQuest.com, a blog on education politics,
policy and technology or read about his first book, The Sex Ed
Chronicle, a novel on education and politics in 1980 New Jersey,
at http://www.SexEdChronicles.com.