An article in the Houston Chronicle tapped into the populist sentiment against major banking institutions. Among their targets were Citigroup, Inc. (C) and Capital One (COF).
At issue is the sponsorship of college football bowl games, and whether or not it is appropriate for banks to maintain those sponsorships, particularly as it aligns with colleges – which have long been fertile ground for banks and finance companies to reach new customers with credit cards and private student loans.
The article points out that Citigroup is sponsoring the National Championship Game, even after it has received approximately $50 billion through the TARP program and has repaid less than half of it,
Capital One, which has repaid the $3.6 billion it got from the government, sponsored a bowl bearing its name.
The question however is not whether or not these bailed-out banks should advertise. The article points out correctly that, if they don’t advertise, they may never have a hope of paying the taxpayer back. And, in truth, the few millions that these banks spent on bowl games pales compared with the billions they borrowed from us.
But the Chronicle’s premise is that, by continuing their practice of sponsoring college bowl games, banks like Citigroup and Capital One are perpetuating their association with institutions of higher learning.
The article lists compelling facts.
• Every year, thousands of students take on high-interest debt to pay for school. More than two-thirds of undergraduates from a four-year institution graduate with an average debt of more than $23,000, according to the Institute for College Access and Success.
• While federally insured loans have historically carried reasonable, fixed interest rates — currently between about 3 percent and 6.8 percent— banks have used their campus access to develop a new and far risky practice: private student loans.
• Unlike federally backed student loans, private loans typically come with variable interest rates, often sold with introductory rates that are lower than the fixed-rates on federal loans.
• According to independent market researcher Student Lending Analytics, Citigroup is one of the biggest underwriters of private student loans.
However, a cursory tour of Citigroup’s website, showed a prominent, detailed section giving advice on how to pay for college with no mention of private student loans.
Only after clicking through a couple of layers did I find private student loans listed under a category of “college financing options that help students and parents get additional money to pay for college once grants, scholarships, and federal loans have been exhausted.”
And then a quick Google search under the category of “How to Apply for a Student Loan” brought me to a web page from the Online Education Database (oedb.org):
“Paying for college tuition is difficult, and sometimes, there just isn’t enough government and state funding to go around. Even after you’ve applied for and received all the scholarships, grants, and federal and state loans you can find, you still have a huge bill that looms over you in terms of paying for your education. In these instances, you can choose to take advantage of private student loans to cover the remainder of your costs. The essential thing is to know how you can qualify and what you can expect from a private institution … Interest rates will vary by lender and program and will probably be higher than those attached to federal and state issued loans; however, as part of a private student loan program, the interest rates should be lower than a standard personal loan …”
” One important thing to remember in applying for and accepting private student loans is that you should carefully read the terms and conditions and understand the expectations, not only to assure that you are aware of repayment terms but also to reassure that you understand the rates and grace period involved and to be able to secure the best possible rates.”
And with new legislation taking effect in February, private lenders will be forced to disclose the loan’s interest rate before the borrower signs up.
All in all, attacking the bowl sponsorships seems to be an obvious target that avoids dealing with the much trickier issues. Do the banks take advantage of college students? What role do the colleges play? How much disclosure is enough? What role do parents play in helping students understand their financing options, if they in fact understand them?
This much is certain, the financial crisis and subsequent bailouts have caused consumers to take a different view of banks.
With programs like “Move Your Money” – an initiative that is encouraging consumers to move their accounts away from the big banks and into community banks and credit unions – gaining national awareness, 2010 will force banks to assess the style and the substance of their advertising and marketing initiatives.
