Credit Cards: Marketing to College Students Appears to Have Declined
Published: 2014-02-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Institutions of higher education, alumni groups, and other affiliated organizations may enter into agreements with credit card issuers for “college affinity cards,” in which issuers use the institution's name or logo in exchange for payments. Separately, some credit card issuers offer “college student credit cards,” which are expressly targeted to students. Partly in response to concerns about card issuer practices and rising student credit card debt, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009. The act includes consumer protections and requires disclosures specifically for consumers under the age of 21, including limits to on-campus credit card marketing and requirements for public disclosure of affinity card agreements. The act mandates that GAO review these agreements and assess their effect on student credit card debt.
This report examines (1) trends associated with and characteristics of college affinity card agreements, (2) the extent of marketing for college affinity cards and college student credit cards, and (3) what is known about the effect of use of these cards on student credit card debt. GAO analyzed data from the Federal Reserve and CFPB, including a sample of 39 affinity agreements filed by the issuers. GAO also analyzed data on student credit card use or indebtedness, and interviewed officials from federal agencies, credit card issuers, and affiliated organizations.
section_title: What GAO Found
paragraphs: Trends associated with college affinity card agreements include fewer agreements and cardholders and declining payments, according to data GAO analyzed from the Board of Governors of the Federal Reserve System (Federal Reserve) and the Bureau of Consumer Financial Protection (CFPB). The number of affinity card agreements declined from 1,045 in 2009 to 617 in 2012 (41 percent). More than 70 percent of the agreements in 2012 were with institutions of higher education or alumni organizations, and one issuer—FIA Card Services, a subsidiary of Bank of America—had 67 percent of all agreements. Affinity card issuers paid $50.4 million to all organizations in 2012, 40 percent less than in 2009. In most cases, payments were based on numbers of cardholders and the amount spent on the cards. The card agreements covered contractual obligations related to such things as marketing practices, target populations, use of the organization's logo or trademark, terms of payment, and, in some cases, service standards.
Student-focused marketing of affinity and student cards on campus appears to have declined. Four large affinity card issuers GAO interviewed (representing 91 percent of cardholders) said that they primarily targeted alumni and no longer marketed affinity cards directly to students. In interviews with GAO, institutions of higher education and affiliated organizations agreed that affinity card marketing directly to students had ceased. In addition, five of the nine largest overall credit card issuers that also issue college student credit cards told GAO they no longer actively marketed these cards (such as through direct mail, e-mail, or on-campus activity), but rather relied upon websites and bank branches. Representatives of five institutions with large affinity card agreements told GAO that they generally noticed a decline in on-campus credit card marketing in recent years. Consistent with these observations, available data show a decline in card solicitations to students in recent years. For example, a survey of students in 2013 by Student Monitor, a research firm, found that 6 percent of students reported obtaining a credit card as a result of a direct mail solicitation, compared with 36 percent in 2000.
Data are not available to definitively determine the effect that affinity cards and college student credit cards have had on student credit card debt. For affinity cards, the effect may be limited because fewer students appear to hold such cards. For college student credit cards, the effect is difficult to determine because data are available for credit cards in general but not for student credit cards in particular. However, students' overall use of credit cards appears to have declined in recent years. For example, Student Monitor reported 33 percent of students owned credit cards in 2013 versus 53 percent in 2004, a trend corroborated by several other studies that GAO identified. But Student Monitor found that students with credit cards in their names increasingly obtained the cards before starting college. In addition, it found that in 2013, students charged an average of $171 monthly on their cards, 80 percent of the cards had a credit limit of $1,000 or less, and 72 percent of students said they paid their outstanding charges in full each month. Student Monitor also reported that one quarter of students in 2013 paid a late payment fee at least once since they acquired the credit card, with almost half of those paying more than once.
section_title: What GAO Recommends
paragraphs: GAO makes no recommendations in this report.

section_title: Letter
paragraphs: Institutions of higher education and affiliated organizations, such as  alumni associations, sometimes have agreements with credit card issuers  for “college affinity cards.” These cards often bear the name or logo of the  school or organization, and, in return, the issuer pays a portion of the  proceeds of the credit card to the school or organization. In addition,  some card issuers offer “college student credit cards” that are unaffiliated  with a particular institution but designed specifically for college students.  Consumer advocates and some members of Congress have had  concerns in recent years about student credit card debt and the marketing  practices, such as on-campus solicitations, used to enroll students in  cards.
To address some of these concerns, Congress passed the Credit Card   Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Among other things, the act requires card issuers to file annually with  federal regulators the terms and conditions of their college affinity credit  card agreements with institutions of higher education or affiliated  organizations. The CARD Act also mandates that we report on several  issues related to college affinity and college student credit cards. This  report examines (1) the trends associated with and characteristics of  college affinity card agreements, (2) the extent of marketing for college  affinity and college student credit cards, and (3) what is known about the  effect of the use of affinity cards and student credit cards on student  credit card debt.
To address our first objective, we reviewed annual reports submitted to  Congress by the Board of Governors of the Federal Reserve System  (Federal Reserve) and the Bureau of Consumer Financial Protection, also  known as the Consumer Financial Protection Bureau (CFPB), and  analyzed the public database of agreements that are reported by issuers  annually to them. We assessed the reliability of these databases by  interviewing Federal Reserve and CFPB officials knowledgeable about  the data and checking the data for illogical values or obvious errors. We  found the data to be sufficiently reliable for describing the general  characteristics and trends of the affinity card marketplace. For in-depth  analysis, we further selected a subset of active agreements using a  nonprobability sample of 39 college affinity card agreements between  issuers and institutions of higher education or affiliated organizations from  2011 (the most recent year for which the agreements were available). The sample included the agreements with the largest number of  cardholders overall, for each issuer, and for institutions of higher  education. Collectively, the agreements in our sample covered about 38  percent of all cardholders associated with affinity credit cards in 2011,  which allows us to make statements of context and describe multiple  factors relating to college credit card agreements. Findings from this  limited review cannot be generalized to the overall population of all  agreements for college affinity cards in 2011. We also interviewed  representatives of six institutions of higher education and affiliated  organizations, including those party to three of the four largest  agreements, as determined by number of cardholders. For the second  and third objectives, we reviewed studies, such as those by Sallie Mae  and Student Monitor, on student credit card use or indebtedness. We  assessed these data by interviewing Student Monitor and Sallie Mae  officials knowledgeable about the data and checked the data for illogical  values or obvious errors and found them to be sufficiently reliable for  providing general information on student credit card use. Furthermore, we  interviewed representatives of seven credit card issuers, which included  the five largest general credit card issuers as determined by portfolio size  in 2011. Four of these seven issuers offered affinity credit cards,  representing 91 percent of the affinity card market in 2012, as measured  by number of cardholders. Five of these seven issuers also offered  student credit cards. Finally, we interviewed academics and  representatives of federal agencies and other organizations that have  studied issues related to college affinity cards or college students’ credit  card use.
We conducted this performance audit from December 2012 to February  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Almost 537 million general-purpose credit cards were in circulation in the  United States as of the end of 2012.some credit card issuers have offered college affinity cards, which are  governed by contracts (agreements) between the issuer and an  organization such as a college, university, or alumni association. The  cards typically bear the organization’s logo. In return, the issuer makes  payments to the organization based on factors such as the number of  cards issued or the amount charged to the cards. College affinity cards   Since at least the early 1990s,  can be an effective way for issuers to market credit cards because  college alumni often have an attachment to their schools.
In addition, some credit card issuers, including banks and credit unions,  offer college student credit cards—cards that are specifically labeled and  intended for college students. As of November 2013, 6 of the 10 largest  credit card issuers offered these cards, such as Citibank’s Citi Dividend  Card for College Students and Bank of America’s BankAmericard Cash  Rewards for Students. Issuers use these cards to help build a base of  customers who may continue using the issuers’ credit cards after  graduation. The terms and conditions of college student credit cards may  be somewhat different from those of other credit cards—for example, they  may have lower initial credit limits. card issuers and creditors not offer a student any tangible item to  induce the student to apply for or participate in a credit card on or  near the campus of the institution of higher education or at an event  sponsored by or related to an institution of higher education.
The act also requires credit card issuers to submit to CFPB each year the  terms and conditions of any college affinity credit card agreement  between the issuer and an institution of higher education or an affiliated  organization in effect at any time during the preceding calendar year. In  addition to a copy of any college credit card agreement to which the  issuer was a party, issuers also must submit summary information for  each agreement, such as the number of cardholders covered with  accounts open at year-end (regardless of when the account was opened)  and the payments made by the issuer to the institution or organization  during the year. CFPB must submit to Congress, and make available to  the public, an annual report that contains the information submitted by the  card issuers to CFPB.annual report, which covered the 2012 calendar year.
section_title: Changes in the College Affinity Card Market Since the CARD Act
subsections: section_title: Number of Card Agreements, Cardholders, and Payments Declined in 2009–2012
paragraphs: Since the CARD Act was passed in 2009, the numbers of college affinity  card agreements and cardholders have decreased, according to data  from the Federal Reserve and CFPB. From 2009 through 2012, the  number of card agreements declined from 1,045 to 617 (41 percent).  Similarly, the total number of cardholders for college affinity cards  declined by 40 percent (see table 1).
In 2012, 43 percent of the 617 college affinity card agreements were with  alumni associations and 28 percent were with a college, university, or  other institution of higher education (see fig 1).
Among these organization types, the greatest decline in the number of  card agreements since 2009 was for institutions of higher education (see  fig. 2).
In contrast, the largest decline in the number of overall cardholders  occurred within alumni associations, while “other” organizations (a  category that includes fraternities, sororities, and professional or trade  organizations) had the largest decrease in the number of new cardholders  (see table 2).
In 2012, 23 credit card issuers offered college affinity cards.issuer—FIA Card Services, N.A., a subsidiary of Bank of America—had  412 of the 617 reported agreements (67 percent of the market). However,  as seen in figure 3, the company’s market share has dropped since 2009.
Most affinity card issuers had a small number of card agreements—for  example, the majority of issuers had one or two affinity card agreements  (see table 3).
The payments that card issuers made to institutions with which they had  affinity card agreements have decreased since 2009, consistent with the  decline in the number of agreements and cardholders.table 4, affinity card issuers made payments of $50.4 million to  participating institutions in 2012. The median payment in 2012 was about  $5,000, while the average (mean) was about $82,000, with alumni  associations receiving the highest average payment.
Total payments declined by 40 percent between 2009 and 2012. The  largest decline in payments was to alumni associations, while institutions  of higher education had the largest decline in affinity card agreements  over this period. However, during that period, the average payment to  institutions of higher education increased by about $13,200, while the  average payment to alumni associations decreased by about $13,700.  The University of Southern California, through its agreement with FIA  Card Services, received about $1.5 million, the largest payment to an  institution of higher education in 2012. Among all the organizations, the  Penn State Alumni Association received the largest payment in 2012— about $2.7 million, from FIA Card Services. In contrast, 22 percent of the  agreements did not result in any payments to organizations in 2012.
section_title: Card Agreements Can Cover Target Customers, Payments, and Marketing Practices
paragraphs: College affinity card agreements serve as contracts between the card  issuer and the participating organization. Using a data collection  instrument, we reviewed 39 agreements filed with CFPB, which  represented about 38 percent of all cardholders covered by college  affinity card agreements in 2011. The agreements typically covered  such things as the card’s target market, marketing practices, and  payments to the participating organization. As shown in figure 4, the  length of time that the card agreements had been in effect varied. The  oldest originally was signed in January 1991 and the most recent in  December 2011. Many of the agreements had been amended or received  addendums since they were first adopted, which in some cases extended  the existing terms of the original agreement.
In addition to credit cards, 30 of the 39 agreements included other  financial products, such as deposit and checking accounts, automobile  and home loans, and investment accounts. Some agreements included  exclusivity provisions that restricted the organization from offering its  members these products except in conjunction with the current affinity  card issuer.
subsections: section_title: Target Customers and Marketing Practices
paragraphs: The agreements identified which potential cardholders the issuer could  solicit and how. Thirty-seven of the 39 reviewed agreements identified  specific target customers for the college affinity card. Most often, issuers  targeted alumni for the cards, but two-thirds of the agreements also  allowed the issuers to solicit undergraduate students (see table 5).of the agreements identified multiple target populations for card  solicitations.
All but two of the 39 reviewed agreements included provisions requiring  the organization to provide a list of its members to the issuer for  marketing purposes. However, two-thirds of the agreements included  mechanisms allowing the organizations to exclude members who  requested that they not receive third-party solicitations. Nine of the  reviewed agreements also included restrictions on soliciting student  members, generally by restricting their inclusion on the provided lists.
The agreements allowed card issuers to solicit potential cardholders  through a variety of methods (see table 6). More than 80 percent of the  reviewed agreements allowed issuers to use telemarketing, website links  (such as from the alumni association’s website), direct mail, and print  advertisements (such as in sport programs or member magazines). All of  the reviewed agreements allowed the issuers to use more than one of the  different methods that we tracked.
All of the reviewed agreements included provisions allowing the card  issuers to use the trademark or logo of the institution of higher education  or organization. In some instances, the issuer could put these trademarks  on gifts for individuals who completed applications or on other items. All  but two of the agreements included provisions for obtaining prior approval  of marketing materials from the organization or institution (to help ensure  that the card issuer used the trademark or logo appropriately).
section_title: Payments to Organizations under the Agreements
paragraphs: All but one of the 39 reviewed agreements contained information about  the payment arrangement between the issuer and the affiliated  organization or institution of higher education. As shown in table 7,  issuers most frequently provided payments to the organization or  institution based on the number of new and open cards and the amount of  money charged to the cards. Many included bonus payments for  accounts that the organization or institution originated (as opposed to  ones originated through the issuer), and three included bonus payments if  the number of cardholders exceeded a threshold. Many of the  agreements also included a guaranteed payment to the organization or  institution that was not based on the number of cardholders or amount  charged.
The reviewed agreements sometimes contained payments based on  other related products or included broader financial support to the  organization or institution. For example, some payments under the  agreements were based on balances of certificates of deposit or loans  provided. In some instances, the reviewed agreements included support  for scholarships or building renovations.
section_title: Consumer Protections and Service Standards
paragraphs: About one-quarter of the 39 reviewed agreements included explicit  consumer or cardholder protections or service standards. The consumer  protections included restrictions on how often and how issuers could  solicit group members, as well as restrictions on the sharing of the  member database or student information with third parties. Two of the  reviewed agreements also included metrics to assess servicing  standards. For example, one agreement with an alumni association  specified how quickly the issuer would answer and resolve calls and also  required that the credit card terms and features (such as fees and annual  percentage rates) be “best in class” when compared with a set of  identified peer institutions. Additionally, most of the reviewed agreements  included provisions allowing the issuer to make periodic adjustments to  the card program and its terms and features.
section_title: Marketing to Students Appears to Have Declined
paragraphs: According to available data and representatives of card issuers and  affiliated organizations, marketing of college affinity cards and college  student credit cards directly to students appears to have declined.
subsections: section_title: Largest Issuers of Affinity Credit Cards Stated They No Longer Marketed the Cards Directly to Students
paragraphs: As of 2013, college affinity cards were not being marketed directly to  students, according to representatives of issuers and affiliated  organizations with whom we spoke. Four large issuers of affinity cards,  representing 91 percent of the market (as measured by 2012  cardholders), said they did not actively market these cards to students— that is, they did not market on campus or specifically target students  through direct mail, e-mail, print or broadcast media, or their other  marketing venues. Representatives of five affiliated organizations with  affinity credit card agreements corroborated these statements; they told  us that the card issuers no longer marketed their affinity cards to  students, focusing instead on alumni. The issuers noted that it was still  possible that some students applied for college affinity cards because  they would see the same marketing as the general public—such as  advertising at bank branches, sporting events, or on issuer websites.  Graduate students also may receive card solicitations from their  undergraduate schools or alumni organizations. Officials from three  affiliated organizations estimated that the percentage of their current  cardholders who still were students was less than 3 percent and that  these percentages had been declining.
Before the enactment of the CARD Act in 2009, it was not uncommon for  college affinity cards to be marketed to students. Representatives of four  organizations with college affinity cards told us that at one time their cards  were targeted to students, and, as discussed earlier, card agreements  often specified students as a target market and required sharing student  contact information for marketing purposes. However, many of the new  agreements—and amendments to existing agreements—we reviewed  that were put in place after 2009 expressly limit or restrict the marketing  of college affinity cards to students.
Views diverged on the extent to which the CARD Act was responsible for  the decline in marketing of college affinity cards to students. One card  issuer told us the act had little influence because the company had begun  reducing marketing cards to students before the statute was enacted. A  second issuer said it did not market to students because it sought more  affluent customers, but it acknowledged the CARD Act also played a role  by making it more difficult and less efficient to market to students—for  example, placing restrictions on making prescreened credit offers to those  under 21. Representatives of three organizations with college affinity  cards told us they believed the CARD Act played a significant role in the  decline of card marketing to students. Institutions of higher education also  may have influenced this decline—for example, representatives of one  college told us that undergraduate students were not included in its  program or targeted for marketing, largely because the college did not  want to be seen as pushing credit cards on its students.
Marketing of college affinity cards overall—not just to students—has  declined in recent years as many large issuers have diminished their  presence in the marketplace. As discussed earlier, the number of  agreements and cardholders declined by 41 percent and 40 percent,  respectively, from 2009 through 2012. Three of the four affinity card  issuers told us they were not actively seeking additional agreements.  Specifically, one issuer said it was exiting the marketplace as existing  agreements expired, one said it was evaluating the performance of its  existing portfolio before deciding a future direction, and one said it was  evaluating each agreement as it expired and did not regard its college  affinity card business as strategically important. The fourth issuer noted  that while it was seeking new agreements, it had ended many of its  existing agreements because it did not see the program being sustainable  over the long term.
Although some card agreements provide payments to the affiliated  organizations based on the number of card accounts, organizations told  us they generally played a limited role in marketing the cards to their  members. Three of the five organizations had sent e-mails to their  members promoting the cards. One of these organizations told us it would  like to do additional marketing of its own but that the issuer had been  reluctant to permit this. Two organizations were concerned that  participation in marketing could affect the tax status of their payments  under the agreements.
section_title: Marketing of Credit Cards Specifically to Students Has Declined, According to Issuers and Survey Data
paragraphs: Active marketing of college student credit cards appears to have declined  in recent years. We spoke with five issuers of these cards, which  represented 39 percent of all general-purpose credit cards in circulation  as of December 2012. All the issuers told us that as of 2013, they did  not rely on active marketing to students to solicit potential cardholders.  Active marketing includes methods such as direct mail, telemarketing, or  e-mail. Instead, interested students could learn about the cards through  issuer or third-party websites and bank branch offices.
Representatives of affiliated organizations with whom we spoke  confirmed they had observed a reduction in the marketing of credit cards  to students in recent years. For example, they noted that issuers no  longer conducted on-campus solicitations at sporting events and other  university functions, as they had in the past. Two organizations told us  they believed the decline in marketing of college student credit cards  began by the early or mid-2000s, while three others said it began around  2009, when the CARD Act was enacted.
According to annual surveys of college students conducted by Student  Monitor, a market research firm specializing in the college student market,  the number of students obtaining a credit card in response to a solicitation  through direct mail or on campus has dropped significantly in recent  years. The proportion of students reporting that they obtained a credit  card as a result of a direct mail solicitation declined from 36 percent in  2000 to 6 percent in 2013 (see fig. 5). In 2013, students reported  receiving significantly fewer mail (1.6) and e-mail solicitations (1.4) in a  typical month than respondents in 2007 (5.6 and 9.1, respectively). Two  issuers told us the decline in direct mail resulted in part from restrictions  in the CARD Act on prescreened credit offers to those under 21. In 2013,  fewer than 1 percent of students obtained their credit card as a result of  an on-campus display or a company representative on campus (a  practice known as tabling), as compared with 15 percent and 6 percent,  respectively, in 2000. Two issuers told us they still used on-campus  marketing but that they focused on their other financial products, such as  checking accounts, and no longer accepted credit card applications at on- campus events.
According to Student Monitor, more students have been acquiring their  credit cards by initiating contact with the card issuer. For example, in  2013, 48 percent of students receiving a credit card applied in person at a  bank (often the one with which they already had a deposit account),  compared with 14 percent in 2000. Twenty-four percent received a card  by initiating contact through the Internet or by telephone, compared with  approximately 8 percent in 2000.
section_title: Effect of College Affinity and Student Cards on Student Credit Card Debt Largely Is Unknown
paragraphs: Data are not available to definitively determine the effect that affinity  cards and college student cards have had on student credit card debt.  The effect of affinity cards may be limited because, as seen earlier, fewer  students appear to hold these cards. The effect of college student cards  is difficult to determine because the available data cover credit cards in  general rather than college student cards in particular. However, students’  overall use of credit cards appears to have declined in recent years.
subsections: section_title: Limited Information Available on Effects of College Affinity and Student Credit Cards on Card Debt
paragraphs: Publicly available data do not allow a clear determination of the impact of  college affinity and college student cards on student credit card debt. One  limiting factor is that card issuers do not always ask on applications or  know which of their cardholders are students. Additionally, while some  data exist about the age of credit cardholders, age is not a reliable proxy  for student status, especially as the age of college students has increased  in recent years. Multiple studies have examined the factors influencing  credit card use among students, but none that we identified focused  specifically on the impact of college affinity or college student credit cards  on student debt. For example, a 2012 study that examined the effect of  the CARD Act reviewed affinity card agreements and surveyed college  students on their use of credit cards, but it did not seek to determine the  impact of particular types of credit cards. Similarly, surveys on student  credit card use by Sallie Mae (a financial services company specializing  in education) and Student Monitor, discussed later in this report, asked  respondents about general credit card use but not specifically about  affinity or college student credit cards.
subsections: section_title: College Affinity Cards
paragraphs: The effect of affinity cards on student credit card debt may be limited  because fewer students appear to hold these cards, which generally have  not been marketed specifically to college students since at least 2009.  Representatives of two organizations with affinity cards estimated that 1  percent or less of their current cardholders were students, while a third  organization estimated that 3 percent were students. The proportion of  affinity cards held by students appears to have declined since the cards’  introduction. For example, one organization estimated that in the past, up  to 15 percent of its cardholders were students, but that virtually none  were at present.
However, the exact prevalence of students holding affinity credit cards is  not known. While the CARD Act requires issuers to submit information on  college affinity card programs, including the number of cardholders, to  CFPB, issuers are not required to report on the number of student  cardholders. Three affinity card issuers with whom we spoke said that  they could not identify which cardholders were students, or they  considered cardholder information proprietary and therefore declined to  share the information.
section_title: College Student Credit Cards
paragraphs: We did not identify data that would allow a determination of the effect of  college student credit cards in particular—as distinct from credit cards in  general—on student credit card debt. Representatives of CFPB,  researchers, and organizations that have studied credit card use told us  that they were not aware of research or data sets specific to college  student credit cards. While banks file quarterly reports with regulators that  contain information on the banks’ credit card portfolios, these reports do  not differentiate by type of card. Similarly, The Nilson Report, an  industry trade journal that reports on credit cards, has not issued a report  specific to student credit cards in more than 10 years. Four issuers of  college student credit cards told us they were unable to share specific  information on these cards or the student holders of their other credit  cards because the information was not available or they considered such  information proprietary. Even if comprehensive data on college student  credit cards existed, the data’s value for understanding student credit  card debt would be limited because many cardholders could continue to  use their student cards after they ceased being students.
section_title: Students’ Overall Use of Credit Cards Appears to Have Declined
paragraphs: While data specific to college affinity and college student credit cards are  limited, available evidence suggests college students’ use of credit cards  overall has declined in recent years. Annual surveys of college students  conducted by Sallie Mae and Student Monitor represent two primary  sources of information on student credit card use.
subsections: section_title: Number of Students with Credit Cards
paragraphs: The two studies suggest that the number of students owning credit cards  declined in recent years. Student Monitor found that the proportion of  college students holding credit cards declined from 53 percent in 2004 to  33 percent in 2013. owning credit cards decreased from 49 percent in 2010 (the first year it  began collecting this information) to 29 percent in 2013 (see fig. 6). In  the Student Monitor study, 72 percent of students who had a credit card  in their own name in 2013 owned a single card, 21 percent had two credit  cards, and 8 percent had three or more credit cards.
Student Monitor, Financial Services – Spring 2013 (Ridgewood, N.J.: June 2013).  Overall credit card ownership includes cards the students own and those for which they  have permission to use (typically, parents’ cards). The number of students who had a  credit card in their name similarly declined—from 46 percent in 2004 to 26 percent in  2013.
See Student Monitor, 2013.
section_title: Charges and Balances
paragraphs: Forty-five percent of all students with a credit card in their name charged  $100 or less each month in 2013, according to Student Monitor. Fifty-nine  percent used their card fewer than six times a month, including 8 percent  who indicated that they did not usually use their credit card each month.  On average, students charged $171 monthly, a decrease of 8 percent  from 2012.
Sallie Mae reported that students’ median reported balance for all  cardholders was $179 in 2013, as compared with $289 in 2011. The  survey also found that 2 percent of all students in 2013 with a credit card  had a combined outstanding balance of more than $4,000, while 29  percent had a zero balance. Student Monitor found that the 28 percent of  respondents who carried a balance had a median outstanding balance of  $136.
section_title: Credit Limits
paragraphs: Credit limits for credit cards owned by students usually are lower than  those for the general population and have been decreasing. In 2010, the  median credit limit for all bank-type general credit cards was $15,000.contrast, Student Monitor found that more than 60 percent of credit cards  owned by students had credit limits of $500 or less, and 80 percent were  $1,000 or less. In 2000, 27 percent of respondents had credit limits of  $1,000 or less, and 11 percent had limits of at least $5,000. However,  because students may have multiple credit cards, their total credit card  debt can be higher than the credit limit of any one card.
section_title: Payment and Delinquency Patterns
paragraphs: Several studies provide information on college students’ payment  patterns for credit cards:
Payment amount. Student Monitor found that 72 percent of students  reported paying their outstanding charges in full each month in 2013.  Sallie Mae found that 52 percent of student respondents in 2013 paid  in full each month in the previous year, and that 10 percent of  students typically made only the minimum payment.
Parental responsibility. The Student Monitor and Sallie Mae studies  found that the college student, rather than the parent, was most often  responsible for making credit card payments (79 percent in the  Student Monitor study and 92 percent in the Sallie Mae study).
Late payment fees. One quarter of students in the 2013 Student  Monitor study reported paying a late payment fee at least once since  acquiring a credit card, with almost half of that group incurring more  than one late fee.
Delinquent payment. Cardholders under 21 were more likely to  experience minor delinquencies (30 or 60 days past due) than older  cardholders, according to the Federal Reserve Bank of Richmond  study. At the same time, young cardholders were substantially less  likely to experience serious delinquency (90 days past due and  longer). The study also found that cardholders who got their credit  cards earlier in life were less likely to experience a serious default  later in life.
section_title: Agency Comments
paragraphs: We provided a draft of this report to CFPB and the Federal Reserve. We  incorporated technical comments from these agencies as appropriate.
We are sending copies of this report to the appropriate congressional  committees, CFPB, the Federal Reserve, and other interested parties. In  addition, the report will be available at no charge on our website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or cackleya@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the trends associated with and characteristics of  college affinity card agreements, (2) the extent of marketing for college  affinity and college student credit cards, and (3) what is known about the  effect of the use of affinity cards and student credit cards on student  credit card debt. We use “college affinity card” to refer to a credit card  issued in conjunction with an agreement between a credit card issuer and  an institution of higher education or an affiliated organization (such as an  alumni association or foundation). We use “college student credit card” to  refer to a credit card established for and targeted to college students.
To identify the trends and general characteristics associated with college  affinity card agreements, we reviewed the 2010 and 2011 Report to the  Congress on College Credit Card Agreements, which the Board of  Governors of the Federal Reserve System (Federal Reserve) issued, and  the 2012 and 2013 College Credit Card Agreements: Annual Report to  Congress, which the Bureau of Consumer Financial Protection (also  known as the Consumer Financial Protection Bureau or CFPB) issued.  These reports provide summary information, such as the total number of  agreements in effect and number of accounts open at the end of the  year.
To determine the characteristics of the agreements, we first reviewed and  analyzed affinity card agreements between issuers and schools or  affiliated organizations from calendar years 2009-2012. We downloaded  information for all those agreements in effect during those years from  public databases managed by the Federal Reserve and CFPB. We analyzed the agreements to identify general trends and characteristics.  We assessed these data by interviewing Federal Reserve and CFPB staff  knowledgeable about the data and checking the data for illogical values  or obvious errors. We found the data to be sufficiently reliable for  describing the general characteristics and trends of the affinity card  marketplace.
Because we were most interested in current agreements, we focused our  analysis on the agreements from 2011, the most recent year for which  information was available. Twenty providers issued these agreements.  For a more thorough analysis, we selected a nonprobability sample of 39  agreements from 574 agreements identified as being in effect as of  January 1, 2012. We determined the sample by applying three criteria to  the agreements. First, we included the 25 largest agreements overall, as  measured by the number of cardholders. Second, we included the largest  agreement from each issuer that provided affinity credit cards. Third, we  included the five largest agreements with institutions of higher education,  as measured by the number of cardholders under those agreements.  These numbers do not add to 39 because agreements could meet criteria  for inclusion under more than one category. We selected these criteria  because we wanted to capture a large proportion of affinity cardholders  as well as any potential variation among issuers or organizational type.  We included the five largest institutions of higher education because we  anticipated that those agreements could be more likely to include  students as cardholders, a topic of specific interest. See table 8 for the list  of reviewed agreements.
Collectively, the agreements included in our sample covered about 38  percent of all cardholders in 2011. Twenty-six of the reviewed  agreements were with alumni associations, 8 were with institutions of  higher education, 3 were with foundations, and 2 were with other  organizations.
We reviewed these agreements and collected information using a data  collection instrument (DCI) to gather characteristics such as their effective  date, duration, allowed marketing practices and target populations,  payments to the organization, consumer protections, and service  standards. Findings from this limited review of 39 agreements cannot be  generalized to the overall population of agreements in 2011.
We developed the DCI after reviewing some of the 2011 agreements,  focusing on items such as the scope, consumer protections, marketing  practices, payments, terms, and fees. We converted the DCI to a pdf  format for direct data entry. Three team members entered information on  two agreements each using the DCI and discussed their experiences. We  revised some questions for clarity and deleted others to avoid duplication.  This version of the DCI was reviewed by a GAO survey specialist and an  expert who surveyed students regarding their credit card use and  conducted a similar review of the credit card agreements, and we  incorporated minor changes. We further clarified that the review of  agreements would focus on the most recent full agreement or  amendment and those items that were still in effect as of January 1, 2012.  Two team members then entered information about the agreements into  the DCI. We verified our coding by comparing the original coder’s DCI  responses with those of the second coder. For each comparison set, we  compared the coding for 59 data elements and found discrepancies in  fewer than 10 percent of the entries. This was determined to ensure a  base level of reliability in the information collected. While the results of  our review of the 39 agreements cannot be projected nationwide, they  provide context and information related to the contents of the 39  agreements.
To address the second and third objectives, we reviewed documents and  interviewed representatives of credit card issuers, organizations and  schools with affinity card agreements, and federal agencies, as well as  academics and other individuals who have studied credit cards and their  use by students. We reviewed studies—such as those by Sallie Mae (a  financial services company specializing in education), Student Monitor (a  market research firm that specializes in the college student market), and  U.S. Public Interest Research Group (a consumer advocacy  organization)—on student credit card use. We identified these studies  through the Econ Lit database and general Internet searches using terms  such as “college credit cards.” We focused on several years of Sallie  Mae’s How America Pays for College studies and on Student Monitor’s  Financial Services – Spring 2013 report, as well as recent reports by  CFPB and the Federal Reserve Bank of Richmond. We assessed the  quality of the survey data by interviewing Student Monitor and Sallie Mae  officials knowledgeable about the data and checked the data for illogical  values or obvious errors. We found the data to be of sufficient quality and  reliability for providing general information on student credit card use.  According to the Student Monitor, the estimates from the 2013 study had  a 2.4 percent margin of error at the 95 percent confidence level.  Because  surveys are based on self-reporting of payment behaviors and estimated  credit card debt levels, they may be prone to biases and not accurately  represent actual behaviors and debt levels. The surveys were not  designed to verify that information. Some researchers maintain that  respondents sometimes underreport the quantity or level of  characteristics that could be considered unflattering, such as the amount  of outstanding credit card debt. We also reviewed marketing materials  issuers used to market the cards. Lastly, we reviewed provisions of the  Credit Card Accountability Responsibility and Disclosure Act of 2009  related to affinity credit cards and credit card use by those under 21.
We interviewed representatives of four issuers of affinity credit cards— Bank of America (FIA Services), Capital One, Chase, and U.S. Bank— that had 91 percent of such cardholders in 2012. We also interviewed  representatives of the five largest general credit card issuers, measured   We discussed  by 2011 portfolio size, as reported by The Nilson Report. with these issuers—American Express, Bank of America (FIA Services),  Chase, Citibank, and Wells Fargo—any student credit cards currently or  previously issued. To get a broader perspective on the use of these cards  by financial institutions, we also interviewed representatives of three  industry trade groups—the American Bankers Association, the Consumer  Bankers Association, and the Credit Union National Association.
We also interviewed representatives of six organizations and schools to  discuss their affinity credit card relationships—the Association of Former  Students of Texas A&M University, Boston University Alumni Association,  Georgia Tech Alumni Association, Golden Key International Honour  Society, Penn State Alumni Association, and Washington University.  These six organizations were chosen because they had among the  largest number of affinity cards (as determined by number of  cardholders), had cards from the three affinity card issuers with the most  agreements, and included one organization (Washington University) that  had previously chosen to end its affinity agreement. To get a broader  perspective, we also interviewed representatives of the National  Association of College and University Business Officers.
In addition, we interviewed representatives of CFPB, the Department of  Education, the Federal Reserve, and the Office of the Comptroller of the  Currency to discuss their oversight of affinity and student credit cards and  trends they have observed in the industry. We talked with two academics  who have studied and written about student credit card use, as well as  representatives of Sallie Mae, Student Monitor, and the U.S. Public  Interest Research Group.
The Nilson Report is a twice-monthly trade journal that provides information on  companies, products, and services from the payments industry.
We conducted this performance audit from December 2012 to February  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, individuals making key  contributions to this report were Jason Bromberg, Assistant Director; Amy  Anderson; Kevin Averyt; Daniel Newman; Christopher H. Schmitt; and  Michelle St. Pierre. In addition, key support was provided by Bethany M.  Benitez; Kenneth Bombara; William Chatlos; Barbara Roesmann; and  Jena Sinkfield.