Debit Cards and College Students

Schools are now commonly contracting with banks to disburse financial aid money to students. In 2008 Congress finally barred student lenders from offering school kickbacks to steer student business their way. Then in 2009 Congress required credit card companies marketing to young people, and often paying schools or alumni associations for access, to ensure that applicants had the means to pay before issuing cards. However, debit cards have received far less federal oversight.

According to a study by the United States Public Interest Research Group Education Fund nearly 900 colleges and universities have card relationships with banks or other financial institutions, some of which manage student aid disbursements by turning students IDs into debit cards. Some of the schools save money by outsourcing administrative costs and others receive payments from the banks.

Lawmakers are now trying to get answers about these practices. Citing the study, Democratic Senators Richard Durbin and Jack Reed and Democratic Representative Peter Welch sent letters to 15 financial institutions asking each to provide information on campus card fees. Senator Durbin and Representative George Miller have asked the inspector general of the Department of Education to determine whether the arrangement hurt students or violate federal regulations. They criticized the banks for what they described as "aggresive and misleading marketing" to students and for charging hidden fees that could lead students to quickly deplete their aid accounts.

The study noted some fees charged by the biggest player in the field, Higher One, which has contracts with 520 campuses. Student account holders are charged $29 the first time they overdraw and $38 after that. They are also charged 50 cents for making a debit card purchase with a PIN and $2.50 for using another bank's ATM to withdraw cash.

According to the study, some students mistakenly believe that they must keep their aid money with the issuing bank. The study says that other students believe they have to wait longer for funds if they want them disbursed through their own banks. It says that some of the banking arrangements may benefit students but it points out the lack of transparency in the contracts between colleges and the banks.

Unfortunately, high banking fees are all too common these days for consumers. However, school administrators should be doing more to protect students. Lower fees for the students should be a higher priority before signing a deal with a bank for campus access. Otherwise regulators and Congress will need to step in again.

On a somewhat related topic, if you are struggling with credit card debt you may want to consider filing bankruptcy. Filing a Chapter 7 bankruptcy can discharge all unsecured credit card debt. I can help you file Chapter 7 bankruptcy in Kansas or Missouri. Please call or email me to schedule a free initial consultation where I can discuss your options. Comments or questions are welcome.