REPORTER'S BLOG REPORTER'S BLOG More on higher education: USA TODAY's Mary Beth Marklein offers insight on college admissions, classes and trends, and she wants to hear from you The ID card at Portland State University in Oregon has long been the key to campus life, allowing students to check out books, get into buildings and access their meal plans. A few years ago, the school created another use for the IDs: buying books and school supplies. Students just had to activate their ID as a debit card by opening a bank account promoted by the university. The school, under an exclusive deal with a bank, earned money when students swiped their cards and signed for a purchase. It also profited based on how much money students kept in their accounts. STORY: Cuomo examining pacts between colleges, banks EXCLUSIVE: Debit-card policies at the 15 largest universities CHART: How overdraft fees impact young consumers Hundreds of students protested, angry that the school was promoting a bank account they felt cost students more than other banking options. Their objections now are being echoed by a growing number of consumer groups and college students across the nation. They argue that universities are profiting at students' expense through exclusive debit card and checking account deals that can net a school hundreds of thousands of dollars a year. "I'm not an angry long-haired hippie against corporations," says Ryan Klute, 25, a graduate student at Portland State. "But it's a bad idea when the university and the company have a vested interest in you spending your money so they can make money off you." Such concerns are beginning to draw attention from state officials. New York Attorney General Andrew Cuomo, who investigated the student-loan industry last year, has begun examining debit card relationships between colleges and banks, his office said late last week. Cuomo's inquiry into student-loan providers led to changes within a system in which major colleges apparently received financial perks for touting lenders that didn't necessarily offer the best deals for students. Banks have long pitched credit cards on campuses through exclusive deals with university alumni and athletic groups. But in marketing financial products to students, debit card partnerships have become the next frontier. Why? One major reason is that debit card use is growing faster than credit card use, and young adults have proved especially willing to embrace the financial industry's push for cashless payments. Students also tend to be short on cash. That makes them a reliable source of fees for banks, which charge up to $38 each time consumers overdraw their accounts. There's another factor, too: Banks want to forge ties with students that will last well beyond the college years. "You'd hope that if we have established a relationship with an individual in college, when they go to buy the first car, their first house, they would think of us," says Steve Dale, a spokesman for U.S. Bank, which has partnered with 28 colleges to issue ID cards that can double as debit cards. Such deals are particularly attractive to public universities facing severe cuts in state funding. That helps explain why, even as some colleges limit credit card marketing on campus, they still let banks pitch accounts and debit cards to students. Banks want to attract students with debit cards — through combination ID cards — and then sell them other products, such as credit cards, says Robert Huber, who consults with colleges on multipurpose cards. Debit card partnerships are "not a backdoor way but a gateway for banks to market other products," says Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. Far fewer colleges have debit card than credit card alliances, but more are joining the move to ID-debit cards. In 2007, 127 schools had joined with banks to issue ID cards that double as debit cards, a 144% jump from 2002, according to CR80News, an industry publication. A USA TODAY survey of the nation's 15 largest universities by enrollment reveals that more than half now have bank card relationships with financial institutions. In most cases, that means the student ID card doubles as a debit card. "If the big universities are doing it, then it's likely the small ones will follow," says Margaret Reed, an associate accounting professor at the University of Cincinnati. "If I were a student, I wouldn't be happy" that colleges are pushing a product that earns them money. Students shouldn't assume the bank account and debit card promoted by the university will be a good deal for them, says Greg McBride, a senior financial analyst at Bankrate.com. "In life, you're going to pay for convenience," McBride says. "If the goal is to get the most out of your money, it pays to shop around." 'Hard to walk away from' Under these contracts, large universities can generate revenue — up to $1 million or so a year, USA TODAY found. The University of Minnesota has one of the most lucrative deals among the 15 largest schools. It receives a guaranteed $1 million a year — on top of a $2 million signing bonus — under its contract with TCF Financial. The university uses that revenue for student services, including scholarships and late-night buses, says Shirley Everson, director of University of Minnesota's campus card office. "You can go from university to university, and they'll tell you that (the revenue) carrot is hard to walk away from," says Andrew Perkins, campus card manager at Arizona State University, which hopes to soon link its ID card to a bank card that students can use anywhere in the world. Portland State's 4-year-old deal, which was reviewed by USA TODAY, projects that the school will reap more than $300,000 and save hundreds of thousands more in administrative costs from the ID-debit card over five years. Portland State and other schools say money isn't the main reason they seek partnerships with financial institutions. "Frankly, (the money) is not enough for us to do much with," says Dee Wendler, Portland State's associate vice president for finance, adding that the school is getting "much less" than originally projected. "We wanted to move our systems away from Social Security numbers, and this was a way to recard the campus" without significant cost to the school, Wendler says. (Typically, banks bear the administrative costs of reissuing ID cards under the deals.) The school encourages students to open a bank account with its bank partner, Higher One, and to have any financial aid transferred electronically — rather than by check — to save them time and the school money, Wendler says. Portland State students are issued a free ID card with a MasterCard logo, but they're not required to link it to the bank account and use it as a debit card. Those who prefer a regular ID card that can't double as a debit card can get one for $20. The school agreed to provide the alternative ID after students protested the new card, Wendler says. But only 110 current active students — out of about 25,000 — have paid for the alternative ID, she notes. The university and Higher One also have addressed other student concerns, they say, such as revamping the card-activation process after students complained that it was too easy for them to accidentally sign up for the bank account. Some consumer groups worry that colleges are choosing financial partners mainly for the revenue they stand to receive and ignoring bank fees imposed on students of modest means. One big moneymaker for banks is letting customers overdraw their accounts, then hitting them with a fee for doing so. The Center for Responsible Lending, a consumer advocacy group, estimates that overdraft fees cost consumers $17.5 billion each year — 11% more than the $15.8 billion that consumers are overdrawing on their accounts. College students tend to be hurt disproportionately, the center says. "More so than anyone else, they are willing to use their debit cards for small-dollar transactions," says Eric Halperin, director of the center's Washington office. "When they do overdraft, it can be amazingly expensive." Young adults ages 18-24 pay more than $3 in fees on average for every $1 overdrawn, compared with nearly $2 in fees paid by other adults, the center's data show. Because of the outsize impact of these fees on college students, Halperin says, schools that strike deals with banks should require the financial institution to deny a transaction — at no charge to the student — if there isn't enough money to cover it. If the bank mistakenly approves a transaction that overdraws an account, Halperin adds, it should waive any resulting fee. Colleges with ID-debit card deals typically let banks charge students overdraft fees. "Given the debt loads students have, the last thing a university should be doing is adding more debt to a student's life, and that's what overdraft fees do," Halperin says. But Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, says she believes that "it's OK for (college students) to be charged overdraft fees as long as they're not (excessively) punitive. "The reality," Cunningham says, is that "in the real world, no one is going to coddle them along." Banks say the earlier students learn about financial management, the better. By charging students fees for overdrawing their accounts, says Nessa Feddis, senior federal counsel at the American Bankers Association, banks are providing them with "an opportunity to learn to manage a bank account." Jean Ann Fox, director of financial services at the Consumer Federation of America, rejects that argument: "That's like saying we're going to let you drive into trees so you can learn (not to abuse) alcohol." Coffee overdrafts: $150 Kevin Wendt, a graduate student at the University of Minnesota, says he sees nothing wrong with his school teaming with a bank, TCF Financial, to provide him with a student ID that doubles as a debit card. "Because the university had a relationship with the bank, I knew exactly where to go," says Wendt, 23, adding, "I even got a free sweatshirt for opening up an account." Wendt overdrew on his account a few times, he says, but "almost every time, I'd be able to call up and say, 'Can you reverse it?' And (the bank) did." TCF doesn't always waive overdraft fees. But its overdraft policies are "well-publicized, and students know the rules and generally abide by them," TCF spokesman Jason Korstange wrote in an e-mail. Meanwhile, PNC Bank automatically waives the overdraft fee for first-time offenders at the 14 schools it partners with on ID-debit cards. Wachovia, with 16 such alliances, gives all students who open a new checking account a one-day free pass on overdraft fees. Brad Vehafric, a junior at Portland State, signed up for a bank account linked to his student ID card when he was a freshman. He bought a couple of coffees with the card one day, he says, assuming he had enough money in the account. The debit-card transactions went through, but because he didn't have enough money to cover them, he was charged about $150 in fees. He asked Higher One to refund the charges, he says, but was denied. Vehafric paid the fees and closed his account soon after. Mark Volchek, Higher One's chairman, says the bank account it offers to students charges no monthly fees and requires no minimum balance, but "like any other checking account, there are some times when students will incur fees." Overall, the fees charged are comparable to those of other national banks, he adds. If students lack enough money in their accounts, Higher One, unlike many other financial institutions, generally denies the debit card transaction, Volchek says. But that's not always possible, he notes, because some merchants will authorize a purchase without checking the buyer's available balance. In such cases, Volchek says, if an overdraft occurs, the bank charges students a fee to offset its costs and to hedge against losses if students don't repay the amount overdrawn. Vehafric says that if banks are partnering with universities to pitch products to college students, they should be more lenient with their fees — and more willing to forgive minor transgressions. "Why charge $30 for a $2 cup of coffee?" he asks. "It's obvious that some profit angle is associated with it, and that's not congruent with student interests." Contributing: Barbara Hansen HOW OVERDRAFT FEES IMPACT YOUNG CONSUMERS | HOW OVERDRAFT FEES IMPACT YOUNG CONSUMERS | Story Overdraft fees hit young people's wallets harder because the group tends to use debit cards more often for small transactions. Median overdraft fee Median transaction amount Median amount overdrawn Median fee per $1 borrowed* Young adults (18-24) $33 $12 $10 $3.25 All adults $34 $20 $16.46 $1.94 * -- median fee divided by median amount overdrawn does not equal fee per $1 borrowed due to rounding. Source: Lightspeed Research and Center for Responsible Lending Enlarge By Alan S Weiner for USA TODAY Portland State students Ryan Klute, right, and Brad Vehafric say the university shouldn't have financial ties to student IDs that double as debit cards. Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read more