Confounding Credit Cards and Student Loans – Kickbacks and Late Fees

In his recent article, “Who says pimpin ain’t easy?” prominent Florida bankruptcy lawyer Chip Parker calls attention to a sweet deal between TCF Financial Corporation and the University of Minnesota allowing  a TCF-issued debit card to act as official student ID.  Parker and the Business Week article to which he refers identify two problematic areas about the relationship between U. Minn and TCF: Lucrative finance charges and pressure for students to use TCF for other banking needs.  A recent 9^th circuit ruling (see my prior post: When an educational Institution provides Consumer Credit) suggests another hidden booby trap.  Those ATM withdrawals, bank fees and off campus consumer purchases may end up being student loans.The advantage to the bank is obvious. Student loans, including private loans not guaranteed by the Federal government, are almost impossible to discharge in bankruptcy, whereas an insolvent recent college graduate would be able to eliminate ordinary credit card debt by filing a Chapter 7 bankruptcy.  In the case discussed in my earlier article, Elle McKay v. Vanderbilt University, the court ruled that consumer purchases made on campus on a credit card issued by a private university constituted a student loan within the meaning of the bankruptcy laws.  I cannot offhand conceive of a compelling argument to distinguish between that case and the University of Minnesota situation in which a card with the same primary function (intra-university billing) is issued by a private financial institution.

TCF paid the  University of Minnesota a hefty 40 million dollars for a 25 year contract ensuring this relationship, and also provided the University with much of the labor and hardware to set up the new billing system. The cost of the “savings” to the University will, of course, ultimately be borne by students. TCF also gave the University of Minnesota $35 million towards the $235 million cost of a new on-campus football stadium in 2005, in exchange for exclusive naming rights.  The plans for this venture call for the University of Minnesota to contribute $160 million to the stadium, to be raised from “corporate sponsorships, private donations, student fees, parking, and other game-day revenues”.  Potentially, students attending the University of Minnesota to pursue an academic degree could end up paying nontrivial amounts of money to bolster a corporation’s self-serving largesse.

Parker (presumably ironically) refers to the deal between the University of Minnesota and TCF as a “match made in heaven”.  Personally I feel that this type of match, which partakes of a large measure of predatory lending masquerading as disinterested furthering of education, is negotiated and consummated in a very different part of the cosmic afterlife, from which both parties – the unfortunate student who is lured into the debt trap and the financial institution which knowingly makes loans which cannot be repaid – will find there is no easy exit.