Many Michigan universities and alumni associations are making school pride pay, according to a Federal Reserve Report. The first-ever report was mandated by new laws that went into effect last year which require universities to report all revenue generated by marketing college affinity credit cards to students.
The unprecedented Federal Reserve report revealed that $2.7 million was paid out to 16 different Michigan schools and alumni associations by card issuers. Across the country there were some 1,004 agreements and 1.7 million active accounts, involving 21 issuers. Overall, the card industry doled out over $73 million to universities and groups. This income is appealing to colleges and alumni groups alike and card issuers benefit from marketing specifically to students and alumni.
The University of Michigan Alumni Association was the highest earner in the state of Michigan as a result of marketing agreements, having received $1.6 million. That dollar figure ranks them the third in the nation. Credit card marketing deals were the second most lucrative statewide for Michigan State University. They reported earning $457,000.
Many are critical of universities and alumni groups making money by marketing credit cards. But the schools and groups defend this revenue and claim to view the cards as a service that allows students and alumni an opportunity to give back. Additionally, some of the money that is earned is spent on scholarships and career services. The U of M alumni group said the cards serve as a way for students to learn about handling their own finances and also give cardholders a chance to show off their school pride.
“Many of our alumni like to show off those Sparty cards,” said Scott Westerman, head of the Michigan State University Alumni Association, according to the website Freep.
Schools and alumni groups negotiate individual deals with card issuers which sometimes yield better-than-usual credit terms for borrowers. Typically, commissions are paid to the corresponding school or group for each purchase made on the card. Occasionally, the university or group also receives a one-time royalty for each new account opened. Universities and alumni groups frequently share the proceeds.
A university or alumni group cannot be blamed for a student abusing a credit card, but those critical of these marketing deals argue that universities should not be involved in these types of money making ventures.
Credit card issuers point out that most of the college-branded cards are carried by alumni and that students themselves represent only a small fraction of cardholders.