Star and Student Loan Group Sending Credit Card to School

Hundreds of college students arriving on 31 campuses this month and next will be carrying a student loan in their wallets.

Instead of having to cash loan checks, the students will pull out a credit card to pay for school costs as they arise.

CollegeCard was conceived last fall by Southwest Student Services Corp. in Mesa, Ariz. The nonprofit student lending organization enlisted Star Banc Corp. of Cincinnati to issue the private- label card and Total System Services Inc. in Columbus, Ga., to process the transactions.

Paul Barberini, president of Southwest, said the card gives students and their parents a "better way of managing money." CollegeCard can be used only at selected merchants for school-related costs.

Southwest markets and manages the program, underwriting the card loans with guarantees from Education Resources Institute in Boston.

Students pay a $25 annual fee, but incur no origination cost as they would with a personal loan. They must earn $100 a month to qualify for the card and can receive credit lines up to $30,000.

The interest rate is prime plus 4.7%, which is below the average for bank cards but higher than what students might pay for a personal loan.

Collin McKenny, senior vice president of card services at $9.6 billion- asset Star Banc, said the CollegeCard supplements financial aid and other loans that students might be getting. "It's underwritten in the same way as student loans by Southwest, so it's not a risk to the bank."

Star makes money from fee income, not on loans outstanding, Ms. McKenny said. There is a $15 late fee and a $15 over-limit fee, and no grace period.

Eric Weil, publisher of Collegiate Trends in Ridgewood, N.J., said the card is limited in its application. "Students' lifestyle needs are greater than that."

For example, he said, students who must work to pay for school might consider an automobile expense to be school related, but they wouldn't be able to pay for it with CollegeCard as they would with money from a regular loan.

Southwest signs merchants to accept its card at less than than the 1.5% to 2% discount rates that other general-purpose cards might cost them, Mr. Barberini said.

At schools such as the University of Southern California, University of Arizona, San Francisco Art Institute, and Western Baptist College, cardholders can pay for tuition and fees, student housing, meal plans, textbooks and supplies, health insurance, parking fees, and library charges.

Many universities are moving to "one-card" systems, under which student identification cards can be used as debit cards with merchants on campus, Mr. Weil said.

"The features of the CollegeCard could easily be worked into a one-card system, which would obviate the need for CollegeCard," he said.

Southwest offers both traditional and nontraditional student financing. It also markets a service for students and families seeking ways to finance post-secondary education. Southwest and its affiliates hold $1 billion in assets and service the accounts of more than 132,000 students.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER