A bill passed through the California State Senate that seeks to prevent universities from charging students an extra fee for credit card transactions will now make its way to the Assembly, where it will face a final vote.
This bill should be defeated, both because it is yet another unfunded mandate on education and because it encourages an unhealthy financial ethic among students.
For years, universities have been absorbing the cost of merchant fees — the fee charged by credit companies whenever a transaction is completed. At between $78 and $125 a year for each full time student, the merchant fees cost CSUN a total of $900,000 for the 2004-05 fiscal year. CSUN and other campuses are seeking to recoup the financial losses that are a result of these fees by requiring the students to pay them, thus patching up a significant budgetary hole.
However, Sen. Debra Bowen (D-Redondo Beach), the author of SB 860, does not see the wisdom in such an approach.
One of her many objections to the new fees is that they are “discriminatory” toward students who pay their bills using credit cards. Bowen claims that such fees are “unacceptable … because the cost of tuition shouldn’t vary depending on how a student or their parents decide to pay the bill.” Taking up the dusty mantle of pro-market conservatism, Bowen also claims that “this kind of discriminatory pricing isn’t allowed in the private sector,” and she expresses her desire to “ban (the fee increase) everywhere in government.”
Bowen also sees the credit card fees as contrary to the best interests of the various universities.
CSU campuses spend $30.85 to process online credit card payments, but spend $33.30 to administer tuition payment installment plans for students. A drop in credit card transactions would theoretically see an increase in administration fees as more students opt to pay for their tuition in installments or through cash and check transactions.
“It’s completely backwards to charge people who pay with credit cards more money, when they’re actually saving universities money by using the Internet and automated phone systems to pay their bills,” Bowen says.
While it is encouraging to hear a California elected official talking about fiscal responsibility for a change, Bowen’s arguments are not very compelling. As for her assertion that such discriminatory pricing is absent in the private sector, she is technically correct, but only in the sense that there are not two prices for credit and non-credit transactions.
In reality, consumers pay for the merchant fees every time they go shopping. The difference is that in a business, the cost of credit transactions is offset by an overall increase in the price of goods and services. This is one reason why gas is cheaper at gas stations that do not accept credit cards.
Her analysis of administration costs also does not bear scrutiny. While she is correct about the differences in administration costs between credit card transactions and more traditional paper transactions, she examines the cost differences between the two without factoring in the merchant fees associated with the credit cards.
When the merchant fees are added to the administrative costs of the credit transactions, the cost to the university for using credit cards stands between $108 and $155 per transaction. Thus the real cost of a credit card transaction surpasses the cost of an installment plan by at least $75 dollars per student.
Of course, universities would be more open to encouraging credit card transactions if they did not have to worry about the merchant fees. Bowen could have easily taken care of that by inserting a provision into her bill that would require the state to reimburse the schools for the amount spent on merchant fees.
Yet the same budgetary realities that prompted the universities to begin charging these extra fees in the first place also operate in the California Senate. At a time when the governor and teachers unions are waging a bitter fight over education spending, a bill that funnels tens of millions of extra dollars into school coffers would certainly have invited a gubernatorial veto. Bowen thus took the safe route out, preferring an unfunded mandate rather than the more sober policy of inactivity.
Left out of all this discussion, however, is the larger issue of why we are concerned about the fee increase at all. Should we not be glad that students are being discouraged from using their credit cards? After all, credit cards can boast of interest rates in the 15 to 20 percent range, especially for students. There are much more responsible and fiscally sound ways to finance an education. Financial aid and federal student loans are low-cost alternatives for many students. Even privately held student loans offer deferred payment and low interest rates to students who do not qualify for federal or state aid.
No, the main problem with this whole discussion is that it assumes that students should not have to bear even a minimal cost when it comes to higher education.
Any attempt to increase the share they are asked to pay is somehow a betrayal of the students, and a rejection of higher education itself. It is an ethos of entitlement that, sadly, plagues much of higher education today.
Yet this ethos is not surprising, funded as it is by the same legislators who cannot balance the state budget, lest they diminish the mighty entitlement juggernaut that is the state of California.
Sean Paroski is a senior applied mathematics major.