Should your school be a financial services provider? It's no longer enough to provide an education; many schools now provide credit, banking services, even insurance protection. But are financial service partnerships sweet deals for schools, or more trouble than they're worth?

St. Norbert College (WI) has its own branded Internet bank--SNCBank.com--and gets $5 for each account opened by one of its 2,000 students, or by faculty, staff, parents, or alumni. What's more, the school no longer pays a local bank $3,000 each year to keep a lone automated teller machine on campus. Instead, St. Norbert boasts three ATMs of its own, courtesy of its service provider Sutton Bank. "We're always looking for cutting-edge things," says the school's president, Bill Hynes. "Our Internet bank sends the subtle message of modern technology."

In Claremont California, Claremont McKenna College (one of a group of five small elite liberal arts colleges there) recently began offering a branded MasterCard to its 8,300 alumni. MBNA, the largest provider of collegiate affinity credit cards, didn't have to be courted, says Elenor Taylor, director of Alumni Relations; "they came to us."

And banking and credit are not the only financial services IHEs are glomming onto: insurance is now a revenue generator for some institutions, as well. Meyer and Associates (www.meverandassoc.com), an insurance administration company that works only with colleges and universities, negotiates insurance agreements for all its clients as a single group. According to company President Ed Meyer, that means volume purchasing power, and good news for schools of all sizes. "The smallest school can offer the same insurance program as the largest one," he says.

But college-offered financial services are not new: Certain schools have been offering their students and alumni financial services for more than 30 years, generally through the alumni association. IHE-sponsored life insurance has been around since the 1970s, credit cards since the '80s. It is banking services not affiliated with a school-based credit union that are the latest wrinkle, made possible by the Internet. Short-term medical insurance is another hot item, helping new graduates bridge the gap between school insurance and their first job, or providing a stopgap for newly unemployed alums.

Still, these programs continue to be more likely to turn up in larger schools, especially state institutions. Smaller private schools have, thus far, been generally less inclined to try them out. But MBNA officials disclose the company works with about 700 schools, public and private. And while there is no agency actually tracking the number of IHEs offering insurance to alumni, Meyer says he is aware of about 500 engaged in that practice.

Jumping on the Bandwagon

Meyer insists it's a mistake for schools to think they have to be big to take advantage of these kinds of programs. "The best responses we get," he says, "are from small, private schools with high academic reputations--especially those with religious affiliations." The services are relatively risk-free, he points out, as long as the school chooses a vendor with a solid track record and sterling customer service. And the services don't carry any out-of-pocket cost, he explains. For the privilege of acquiring its students or alumni as customers (and for the lifetime customer value attached to those acquisitions), the vendor usually pays the school a flat fee per participant or per sale; or in the case of credit cards, a percentage of purchases. And boy, do those fees add up. Such programs can provide a welcome--and steady--stream of income, report alumni associations. The Duke University Alumni Association snags one-third of its annual revenue from its credit card. And the Brown University Alumni Association reaps $350,000 a year--70 percent of its non-salary operating budget--from its affinity programs, which include a credit card and various insurance products. In fact, affinity credit cards are often the biggest non-dues moneymaker for alumni associations--not to mention a real boon to the credit card companies.

According to Laney Funderburk, director of Alumni Affairs at Duke, "A new credit card customer can cost a bank $100 or more to acquire. But if the company works with a university, it can make easier sales." To the credit card companies, alumni credit profiles are like gold, They are customers who are likely to spend and likely to pay their bills. With greatly reduced customer acquisition costs, profit margins expand.

In exchange for the fees financial services pay their IHE clients, the financial services provider gets a mailing list, plus a "liaison" staffer who makes sure the list is clean and up-to-date, approves direct mail pieces and other marketing materials, and supplies school logos, etc. The financial services provider handles all marketing and customer service.

IHE-provided customers get services they can trust, the satisfaction of supporting their alma mater, a card with no fee, and often a lower interest rate than with a non-affiliated card (though not necessarily the lowest one around). The card also sports the college seal or a campus image.

As with all affinity programs, consistent and ongoing marketing is key. "Our credit card was dormant until a couple of years ago," says Lisa Raiola, VP/Alumni Relations at Brown. "Then we renegotiated the contract and started having quarterly meetings with the vendor." More frequent direct-marketing mailings brought the program back to life. "Now the program is our biggest moneymaker, and the program that the most alumni take advantage of."

The Student Debt Question

Still with the economy and student-debt figures what they currently are, the trickiest decision, say school officials, is whether to offer the card to students. "Some students can get into bad debt situations," says Ernie Gale, executive director of the University of New Hampshire Alumni Association. If students rack up charges that are enough to yield significant income for the school, they're probably amassing more debt than they can handle, say detractors. But alumni association officials point out that students are probably swimming in credit card offers anyway, and even if they don't own a credit card during their college years, they'll certainly need a card after they graduate. Gale maintains that by offering students a sponsored card with a low credit limit (typically $500), the school can actually help teach students how to manage money--and even go to bat for them if they get into trouble. "We've interceded with the bank on behalf of some students, to help them work out a payment plan," he explains.

According to Paula Bonner, president and CEO of the University of Wisconsin Alumni Association, "We have a great sensitivity about marketing to students. Through us, those accounts will be watched and managed very carefully. We have student-safe policies around any credit limit increase."

Banking on Your School

Branded Internet banking is usually offered by the school itself, rather than by the alumni association, primarily because students are the core market for the bank's offerings. Chicago's DePaul University, and Drexel University in Philadelphia were the trailblazers here, each opening its bank a couple of years ago, once Internet-based banks were proved feasible, if not necessarily profitable. But although customer acquisition costs helped sink the first generation of Internet banks, the DePaul and Drexel service providers--Sutton Bank (www.suttonbank.com) and The Bancorp Bank (www.thebancorp.com) respectively--are betting that affinity Internet banks will inexpensively attract incoming freshmen in need of their first checking account, and will retain them after graduation.

Prime partners. The Bancorp Bank, whose entire business is Internet-based, will open three more collegiate affinity banks (two state school banks and one private school bank) in the next year, according to Vice President Jill Kelly. Kelly maintains that any school with a potential customer base of 60,000--including faculty, students, parents, staff, and alumni--is worth consideration. Sutton Bank, with physical branches in Ohio, has two operational college banks--DePaul and St. Norbert--and was scheduled to open a third for Ashland University (OH) this month, says Executive Vice President Anthony Gorrell. Both companies have several more schools in the pipeline.

What regulation? Interestingly, because the banks don't install deposit-taking facilities on the campuses, they're governed by the banking laws of their parent company's home state, rather than those of the school's, says Gorrell. The Internet allows them to bypass such regulatory nightmares, making affinity banks possible.

Irresistible features. Both Sutton and Bancorp offer similar attractive features: low or no-fee accounts, free online bill payment (a perk that usually costs $4.95 per month and up), interest on checking accounts, and reimbursement for fees incurred at other banks' ATMs. "The account holders win just by going with us," Kelly declares. So far, AJDrexelbank.com has attracted 50 to 60 percent of each incoming class at Drexel--just about the maximum possible, considering that 30 percent of the students commute, and so may already have local bank affiliations. Another plus: Parents have opened accounts so that via online transfers they can quickly move funds to their children.

Win/Win. Both banks expect to reap additional business, either from their account holders as they move into the prime ages for auto and home loans, or from the universities themselves as they venture into tuition bill presentation (enabling transfer of payments electronically). The school's main obligation is to help the bank brand the Web site and provide appropriate links from its own site. And those links go both ways, Kelly notes: The bank can place school event reminders on its site, or even install a fundraising box that says "click here" to donate $5 or $10 to the school.

You're in Good Hands

On the indemnity side, life insurance is the type of coverage most commonly offered through alumni associations. Such programs can be lucrative for IHEs--but generally only if the program has been in place long enough to attract a critical mass of participants. According to Meyer, a school may receive a straight percentage of annual premiums (typically, 5 percent), or a "dividend"--a percentage of the difference between premiums paid in and benefits paid out. The latter is usually a larger sum, but Meyer points out that associations may prefer a fixed percentage that they can include with confidence in their budgets.

Life insurance. Alumni association life insurance is no longer the unique benefit that it was when the only other inexpensive option was coverage through employers. Today, countless professional associations offer group term-life plans, and the Internet has even made it easier for individuals to find inexpensive premiums. But an alumni association may be able to advance sales on policies, based on its track record of finding reliable insurer-partners.

According to Keith Brant, executive director of the UCLA Alumni Association, "A person comparing rates can find a better deal on insurance, but alumni look for us to have done our homework," It's the association's job to make certain its insurance partner is solvent and has good customer service, he explains.

But, says Meyer, schools should know that unlike an employer-paid group-benefit scenario, being an alum doesn't guarantee acceptance into a program. That depends on which criteria the insurance company use to decide whether it will insure them, and how much the premiums will be. What's more, adds Meyer, the carrier's underwriting standards may be loose (requiring only such feedback as smoker and nonsmoker identification), it may be tight (requiring a full physical examination), or it may fall somewhere in-between. "But you can't have a relaxed underwriting policy and low premiums for those covered, along with high percentages back to the schools. You have to give a little on all three, or a lot on one."

Auto and property insurance, two growing areas for alumni associations, usually pay a smaller percentage to the school, but the premiums are so much larger that the revenue to the school can be substantial, says Meyer. These types of policies are now in demand, particularly by new grads who are no longer able to slay on their parents' auto policies and are also in need of renters' insurance for their first apartments.

Short-term medical insurance is an essential part of any alumni program, says Meyer, because it's so desperately needed by many recent graduates. Yes, the product does well when the economy stumbles, but it does poorly in a strong economic environment, he adds. "It's a friend-maker, not a moneymaker," he says, and those "friends" are in need right now: According to Raiola at Brown, the school's new short-term medical insurance program signed up 14 percent of a recent graduating class, a level she terms "unheard of."

Group health insurance is a poor bet for IHEs and participants, says Meyer. Though the group using it may start out healthy, the premiums tend to go up as members of the group get sick and file claims. Over time, the remaining healthy members may opt out and go to another program with lower premiums, leaving a group that's not profitable to insure at anything like an affordable price. The key for an alumni group is the continual aggressive selling of health insurance policies to the young and healthy, to keep the sick/well mix heavily weighted toward well people.

UCLA's Brant says his association still offers major medical, dental, and vision coverage. "But if you stop marketing it, you get that downward spiral," he agrees.

Marketing Makes It Work

Intensive targeted marketing makes IHE-provided financial and insurance programs successful, association directors say.

"Institutions are anxious not to appear to be taking advantage of their access to alumni, but if you've done your due diligence and entered into partnership with the vendor, you'd better market it," says Brown's Lisa Raiola. Her preference is to get the information to the audience in contexts that make sense, rather than through piecemeal direct-mail campaigns. For example, information on short-term medical insurance was included in packets that the association distributed to seniors during graduation week.

And Bonner at Wisconsin advises schools to be selective about who gets offered what. "It's critical to market to the subset of your population that's most likely to be interested in a certain service, instead of mailing or calling people to death."

To Offer or Not to Offer ...

For some schools, the possible gains from financial service offerings aren't worth the risk. Pomona College, one of Claremont McKenna's sister schools, doesn't offer its alumni any financial programs. Granted, with only 18,000 alumni, it's not the biggest plum on the tree for vendors, but Director of Alumni Relations Nancy Treser-Osgood has turned down her share of advances nonetheless.

"We're always struggling to increase the participation rate for alumni giving, and our concern is that anything we do might dilute our alumni contributions," she says. "They might think their credit card took care of their annual contribution." Treser-Osgood says there's a risk of alienating alumni who are already inundated with junk mail and telemarketing calls, if they see or hear the college's name attached to a pitch from a commercial venture. "I'm not comfortable surrendering any kind of marketing to outside vendors; I shudder to think that an outside vendor could contact our alumni with one more offer."

Still, Taylor at Claremont McKenna relates that it was at the request of a number of alumni that her institution began to offer a school credit card. "We wanted to do this as a service--not to bring in a lot of cash," she explains. "We're a small school and we knew this wouldn't necessarily be a big moneymaker. But a lot of our alumni have graduate degrees from other institutions, have been offered cards from those schools, yet feel more loyalty to their undergraduate experience." Officials at Claremont McKenna were so cautious about the prospect, however, that negotiations with MBNA took years, says Taylor.

Without a doubt, some programs are simply a bad idea for certain groups. "We're constantly measuring the balance between providing something useful and something that's a hot button," concedes Wisconsin's Bonner. "We used to be more involved in the marketing of [consolidation] loan products, but we found that we were pressing a sensitive button with our alums. Either they saw it as another way of encouraging debt, or they were insulted by the implication that they needed a consolidation loan."

Even alumni resentment can torpedo some ventures. Brant at UCLA says the school had a discount brokerage program in place in the 1990s, but it fell apart. One factor, he says, was that alumni who were in the brokerage business resented the school taking potential customers from them. "I'm glad we got out of that business," he proclaims. "We won't go back."

Wisconsin has recently begun to offer auto and home insurance--despite some opposition from a few disgruntled alums. Says Bonnet, "Once or twice, we've gotten calls from guys who sell auto insurance, saying, 'What are you doing competing with me?' But we have almost 300,000 alumni. We could do almost anything and someone would find a problem."

Still, the key to keeping returns high and risks low in these financial service offerings is to treasure your alumni, maintains Raiola, at Brown. "It's a privilege to have access to this community. If you violate that trust, it's like cutting down a redwood tree. It takes a long time to grow back."

Elizabeth Gardner is a Chicago-area freelance writer who specializes in technology and finance.