Colleges and universities are in the business of education. Increasingly, they are also in the business of banking.
Banks like Wells Fargo & Co., PNC Financial Services Group Inc. and U.S. Bancorp have signed scores of deals with schools nationwide that essentially make the universities their sales representatives.
Continue Reading Below
The banks get to set up marketing tables at campus events, advertise their products in mailings to students and are promoted as the school's preferred banking option.
In return, the banks pay the institutions royalties, sometimes hundreds of thousands of dollars annually and often based on the number of new accounts. Some schools also get paid each time students use their debit accounts, or earn a cut of the ATM fees. With the deals, banks permeate campus life even more than they can with high-profile athletic sponsorships, while schools tap a new revenue stream.
Such comprehensive agreements have been in place for years, but complete deal terms are just coming to light. By Jan. 1, schools had to post details of the payments they get from their banking partners, as well as the number of student accounts and fees.
A Wall Street Journal review of fee and compensation disclosures found that 112 colleges around the U.S. received nearly $18.7 million in fiscal 2017 from banks for consumer finance deals. Much of that is in the form of royalties. Some of those schools, and others, also have other contracts with banks that rent space on campus for ATMs; those agreements are often worth tens of thousands of dollars annually.
Some payments were meager, like the $2,000 Holy Family University in Pennsylvania received from PNC. At the top, University of California, Berkeley, received roughly $1.7 million under its contract with Bank of the West.
The Journal review of those disclosures and more than 150 contracts found that students at community colleges and regional public universities tended to pay the highest average fees in fiscal 2017, sometimes more than $70 a year for things like overdrafts.
At many of the nation's larger schools, where tens of thousands of students have checking and debit accounts with partner banks, average fees were generally under $30 a year.
Twenty-two of the 30 highest average fees The Journal reviewed were at schools with Wells Fargo contracts. Twenty of the 30 lowest were connected to PNC.
Wells Fargo said some students have "more complex banking needs, such as sending wires or purchasing more checks." The bank added, "By establishing relationships with young adults early we are helping them build healthy financial habits."
Nick Certo, who runs PNC's university banking program, said the bank is investing in potential customers and their communities. And, he added, "schools are looking for funding."
Some of the agreements are notable for their sheer size.
The University of Illinois system gets $936,000 in annual royalty payments from PNC and can earn another $200 per account if more than 4,680 new accounts are opened in a given year. Illinois confirmed the contract details.
Banks and universities say the programs offer an optional convenience, allowing students to link their campus identification cards to banking services.
Consumer watchdogs say a bank's presence on campus or co-branded marketing materials could lead students to think it is their best or even only option for banking at school.
The new disclosure requirement came from a 2015 U.S. Department of Education regulation, which some banks and schools resisted.
The Education Department said schools must ensure the accounts they market are "not inconsistent with the best financial interests of the students opening them," including conducting "reasonable due diligence" at least every two years to review whether fees are in line with market rates. They aren't required to share those comparisons with students.
Bank trade groups say the campus accounts could be cheaper than offerings available to the general public, when used appropriately.
Sometimes schools get a cut of the banks' fees. For example, University of Nevada, Las Vegas, can receive a share of the fees charged to non-customers who use a U.S. Bank ATM on campus.
Artesia Graham, an 18-year-old freshman at UNLV, was reluctant to sign up for a U.S. Bank account because she already banked with Wells Fargo. But she wanted the convenience of using her student ID to pay for purchases and using U.S. Bank's campus branch.
Ms. Graham said she didn't know about the financial arrangement between UNLV and the bank. "I don't know the word to use," she said, "but it's maybe kind of odd."
A UNLV spokeswoman said the school looked at how other universities set up their bid processes for vendors and determined industry standards with a focus on what would best serve its students.
A U.S. Bank spokeswoman said the firm wants to build long-term relationships with students "by providing them with the best student banking account in the marketplace." She added that linking student IDs to a debit account helps schools offset the cost of running their ID-card programs.
Banks sometimes sponsor financial-literacy seminars and advertise their debit accounts in college-acceptance letters and tuition bills. They can require that schools link to their websites and kick other banks' ATMs off campus.
Phil Schuman, director of financial literacy at Indiana University Bloomington, said having prime tables at campus events and offering free food can go a long way in attracting student customers.
Mr. Schuman said he has declined offers to have banks host financial wellness seminars: "We don't want to be in the business of telling students, 'We know what's best for your finances,'" he said.
The partnerships have a complicated history. A decade ago, some financial aid offices were caught steering students to loan packages that provided administrators kickbacks. Later they were investigated for pitching special credit cards with high interest rates and minimal consumer protections.
New laws have quashed most of that behavior, but they generally don't extend to checking or debit accounts.
In light of the heightened scrutiny and new disclosure requirements, some schools have begun to opt for flat-fee payments rather than earnings based on account volume.
Washington State University moved to a flat $275,000 annual payment when it renegotiated its contract with U.S. Bank in spring 2016, a shift that the bank says it supports. Washington State spokesman Phil Weiler said it was done "to avoid any appearance that WSU staff had any incentive to pressure students to bank with U.S. Bank."
Write to Melissa Korn at firstname.lastname@example.org and Christina Rexrode at email@example.com
(END) Dow Jones Newswires
January 28, 2018 09:14 ET (14:14 GMT)
Continue Reading Below