Buy it on Credit and be True to Your School – Ethics Paper
Akhil Rangaraju
MG 670 Fundamentals of Corporate Finance
King Graduate School

Question1: Should Universities enter into agreements to offer affinity credit cards to students?
Answer:
List down the facts of the case. Banks offer credit cards to students in the hope that if they can’t pay their bills, their parents will. Over a period of time banks also expect them to turn into loyal customer.
Ideal Customer: Students are also ideal customer as they tend to carry more balances on their card than other bank customers. This has led to increase in burden of student debt which may impair their future credit capacity. This is more so because banks employed questionable marketing and sales tactics to issue credit cards to students.

Growing Student Debt: It is also noted that student debt has been growing over a period of time. Not only the number of students having credit card has been going up, the average balance has also been going up over the years. Growing student debt causes serious problem for them in futures.
Reasonable Reason for Credit Card: On the other hand, students seem to be getting credit cards to create a credit history and for emergency protection. They also get credit card for convenience and do not max out their credit limits. All these seem to be valid reason for them to have a credit card.
Affinity Card: Recently, credit card companies have started issuing affinity card. Affinity card gives them exclusive right to issue credit card bearing the name of the university or college and its logo to the students of that university. A university in return, gets generous deals and pay-outs from the card company and from card usage.

On one hand, a university can do with additional cash that it gets from affinity cards in these hard times. On the other hand, there are several ethical issues involved in its involvement with affinity cards.

Argument for Affinity Card
There is argument for both for and against a university involving itself with affinity card. Arguments for a university involving itself can be outlines as below.

A university needs funds to finance itself. One of the ways to raise finance is to increase the tuition fees. But this would prevent several deserving candidates with weak finances to avail of higher education.

Affinity cards provide additional sources of funding for a university. A university is not for profit organizations. It may be acceptable for a university to sign agreement related to affinity cards as funds would ultimately be used for the benefit of students.

Another way to look at this is to understand that students may anyway get a credit card, even without affinity agreement. If an affinity agreement does not exist, all the benefits would go to a credit card company. Affinity agreement diverts some of the financial benefits to the university who would anyway use the proceeds of the benefit of the students.

Argument against Affinity Card

Arguments against the affinity agreement can also be made. If affinity agreement is signed, having a credit card with name of university printed on it may encourage more students to have them. Students may be more encouraged to own a credit card because of peer pressure and a sense of belonging.

This may encourage some students who never would have applied for a credit card to have one, not for the sake of having credit card but for the name of the university printed on it.

Affinity card may also be seem like an endorsement from university that having a credit card and running a debt may not be as bad as it may have been made out to be. Students may feel more courageous to own one. Since the university makes some money from affinity card, some may even feel less guilty about having a large balance on credit card.

Student debt is increasing. It does not sound okay that a university may be making money out of students distress, let along encouraging them indirectly to sign up for something that may cause them distress in future.
Summary of the Arguments

Balancing the arguments, it must be noted that case study does not compare the level of student debt of students holding affinity cards to that of students who are holding credit cards and not affinity cards. If it is found that students holding affinity card is more indebted than other students holding non affinity cards, there would be a serious ethical issue against affinity cards.

A university, on the other hand, may not be blamed for what essentially a problem is related to misuse of credit card. This problem can occur even when there is no affinity card. This is similar to a car company being blamed for drunken driving of the car owner.

It has been noted in the case study that students apply for credit card for convenience, emergency protection and to a create credit history. Since intentions with which credit cards are applied for by students are good, universities may have a good argument for signing up an agreement to offer affinity card.

But clinching evidence would be to compare the level of student debt of students with affinity credit cards with those of non-affinity credit cards. Without that information, a firm stand cannot be taken on the issue.

Question2: Weather or not a University has an affinity credit card, does it have an obligation to educate students about credit card misuse and debt management?
Answer:

Argument for a University Having an Obligation
There is argument for both for and against a university having programs to educate students about credit card misuse and debt management. This is irrespective of whether a university has an affinity credit card or not.

A university education is costly. Students apply for credit card for legitimate and good intention. Credit card misuse is one of the important issues facing the student community.
There is also no reliable source where students may learn about credit card misuse. Students face this problem first time when they join a university. Hence, it makes sense for university to have a program about debt management and credit card misuse.

Argument against a University Not Having an Obligation

It may be argued that university is in no way obliged to have a program to educate students on credit card misuse and debt management. Students face several serious issues in their student’s life like drunken driving, drugs use etc. A university can’t be expected to have programs to educate students on all the issues that they face.

Resources of universities are stretched. Have education programs on credit card misuse will further stretch their budget.

Summary of the Arguments
Balancing the argument, a university is not obliged to educate students on credit card misuse and debt management. But it does make sense for a university to educate students on credit card misuse. This is an issue that students encounter for the first time in university campus.

So a university campus may be the best place to deliver this program. This will also inculcate responsible behaviours among students before it is too late for students. This may help make good citizen out of students.

Question3: Does the existence of an affinity credit card create a conflict of interest for a university if and when it adopts an education program on credit card issues and debt management.
Answer:
Conflict of Interest
A University gets generous money from a credit card company for signing affinity agreement. When a university adopts an education program to educate student on credit card misuse and debt management, such a program would have an impact on how much money a university can make through credit cards issued to the students.

There is obvious conflict of interest involved.
Managing Conflict of Interest

If a university does not have an affinity credit card program, it is easy to argue that that a university is not obliged to have a program to educate students on credit card misuse and debt management. If a university makes money though an affinity credit card program, there is some moral obligation on the university to have a program to educate students on credit card misuse and debt management. Presence of conflict of interest is no excuse for not having a good program.

Conflict of interest arises by how a university handles such a program. Is the program mandatory for all students enrolled in the university? If a program is not mandatory, then some student may not enrol and educate themselves. As result they may be more likely to misuse an affinity card program from which university may benefit.

Similarly, a conflict of interest may arise by who delivers the program: is it delivered by an external independent agency, by an in house university staff or a credit card company? If it is delivered by a credit card company, it may lack credibility.

Content of the program may also be related to conflict of interest. Content of program to educate new students on credit card misuse and debt management should not become a sales pitch for an affinity card.

Arguably, there is conflict of interest. But presence of conflict of interest is no reason for not having a program to educate students on credit card misuse. Rather, areas of conflict of interest need to be identified and a detailed process and content should be devised to handle the conflict of interest.
Question3: To what extent are students themselves responsible for their predicament?
Answer:
Responsibility for Predicament
Issues related to misuse of credit cards are similar to issues related to drunken driving. If there is one person responsible for this predicament, it is the student who has landed himself up in trouble. As long as there are some students who owned a credit card and did not land up in trouble, the predicament would always be blamed on student.
At the same time, there are several important factors that cannot be ignored. First time students face the issues related to credit card is in a university. It is at this place that they should be given some information about how to manage their credit card and debt well.

The situation is just like driving a car. There are places where one can learn how to drive a car. Unfortunately, there is no place where one can learn about how to manage a credit card. For students, a university seems to be the best place to start with.

If such education would not be imparted, students would realize it too late. This would come at a cost to the credit card company in terms of default, to the university in terms of students not able to meet the cost of education and to the society in terms of university dropouts. It may be in everybody’s interest that students be educated on credit card misuse and debt management.

Another issue is about predatory sales tactics and lending practices. There has to be proper guidelines and law to ensure that students are not made target of such practices. Given their age and lack of maturity, they would make a vulnerable target.