The university counsel for the University of North Carolina in Greensboro has a good short FAQ on the law on Universities using SSNs:
“A student just refused to give me her social security number for identification purposes. Is she within her rights”
Yes, she probably is. In 1974 Congress enacted Public Law 93-759, “the federal Privacy Act of 1974”, (codified as 5 U.S.C. § 552a) which placed severe limitations on the use which can be made of social security numbers by state and local governmental agencies. Specifically, the Act specified that no governmental agency could deny to any individual any right, benefit or privilege provided by law because of the individual’s refusal to disclose his or her social security number.
“Are there any exceptions?”
Yes,if the disclosure requirement is imposed under a law or regulation which existed prior to the effective date of the Act, (1 January 1975) the requirement is legal. This would include motor vehicle (DMV) records and payroll records (for purposes of deducting social security benefits and for other tax deductions). Also exempted are disclosures required under federal law, e.g. for obtaining federal financial aid.
“But we use social security numbers as the student’s identification number and on lots of other records on campus as well. Are we breaking the law?”
Not as long as we make it clear that disclosure is voluntary and that refusal to give the social security number will not result in denial of admission or other benefits. We are also required by the Act to tell the student what use we are going to make of the social security number. It would be a good idea to make a written record of that disclosure and have the student sign it. Incidentally, this procedure is also required by Administrative Memorandum Number 172, issued by President William Friday on August 23, 1982. A copy of that document is available on request from my office.
Excellent SSN FAQ: http://www.cpsr.org/cpsr/privacy/ssn/ssn.faq.html