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Harvard University announced a major expansion of financial aid that will reduce tuition bills by thousands of dollars — even for families earning six figures.

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College tuition still rising

By Jessica Silver-Greenberg

updated 8:54 p.m. ET Sept. 6, 2007

It was three years ago and Irene Leech still remembers the shock clearly. An associate professor at Virginia Tech who specializes in consumer affairs, she read the terms of the credit card that her school, together with JPMorgan Chase, was marketing to students, alumni, and staff. Behind the card's shiny surface, featuring the football stadium at sunset, the so-called "affinity" card offered some of the most unfavorable terms around for card users. Among other things, the card had what's known as "double-cycle" billing, where interest is calculated over two months instead of the typical one, resulting in higher finance charges. "I was shocked," she says.

The experience convinced Leech that it was time for her to take a stand. First in a limited way and now more broadly, she has been speaking out against the conflicts of interest that universities face when they strike business agreements with credit card companies. Chase ultimately dropped double-cycle billing on the Virginia Tech card, as it did for all cards earlier this year. But Leech warns that schools that get money from credit card companies through affinity contracts or other marketing agreements face intractable problems, in which the school's financial interests are in direct conflict with those of students and alumni.

"Students assume that if the university has an affinity contract with a bank to offer a credit card, the university will surely look after them," she says. "But these contracts are really money-makers for the school, and not about services to the students."

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Million dollar relationships
Leech isn't just taking on Virginia Tech, which takes in seven figures from the Chase deal. Nearly every major university in the country has a multi-million-dollar affinity relationship with a credit card company. The deals can be worth nearly $20 million to a single university. Schools, especially public universities supported by state revenues, are coming under increasing financial pressure to generate new revenue these days, and deals with credit card companies can provide a steady stream of income. And in most cases the worse the card terms are for students and alumni, the more profitable they are for the schools.

At a time when state support for higher education has languished, these contracts have become major sources of cash for universities. The University of Tennessee, which raised eyebrows with a $16 million deal in 1998, recently signed a pact with Chase worth $10 million — roughly $384 per student at a school with a total enrollment of 26,038. If Ohio State, with the nation's largest enrollment at 59,091, signed a similar deal, it could be worth more than $22 million.

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Card issuers and schools say that these relationships are mutually beneficial. With affinity cards, the schools get income that they otherwise wouldn't, while alumni and students get the option of signing up for a credit card. The alumni association at Virginia Tech, which oversees the relationship with Chase, says its affinity card helps students and alumni build credit histories with unusually good service. "Hopefully card-users feel that they get more special care," says Thomas C. Tillar, vice-president for alumni relations at Virginia Tech. Some 20,000 people currently hold the card, including students, alumni, professors, and other staff.

A spokesman for Virginia Tech emphasizes that the business relationship with Chase is with the alumni association, which is a separate entity from the university. The alumni association does have the ability to negotiate contracts with Chase that include giving Chase direct mail access to students, alumni, and professors, and the opportunity to market at university athletic events.

As a growing number of college kids pile up mountains of credit-card debt, the entire issue of credit-card companies on campus is coming under increasing scrutiny. Earlier this year, the state legislatures in Texas, Oklahoma, and New York voted to clamp down on credit-card marketing to college students.

"Clear conflict of interest"
Congress plans to hold hearings on the companies' practices later this year. With such efforts underway, activists say that it is inevitable that the relationships between credit card companies and universities will ultimately face greater examination.

"Universities are pursuing these sweetheart deals with credit card companies, and offering up premiere marketing locations and student names and addresses for a big profit," says Robert Manning, director of the Center for Consumer Financial Services at the Rochester Institute of Technology. "It's a clear conflict of interest."

Affinity relationships typically mean that schools enter into partnership with a credit card company to issue a co-branded card. Bank of America is the leading player in the field, with 900 agreements with schools nationwide. Chase has 40 affinity relationships with schools nationwide. In most cases the school is paid royalties for the partnership. Royalties can top $2 million dollars a year in exchange for offering the credit-card company access to student lists and exclusive marketing privileges at football games and other school events. In addition schools earn a set fee for each student, alumnus, or professor who signs up for a credit card, as well as a percentage of overall charges made on the cards, according to Manning.

CONTINUED: Secret deals between banks and schools...

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