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Tue Jun 19, 2012, 09:33 AM

Banks skim millions in fees from student aid using debit-card-linked student IDs

Washington, D.C. – Over 9 million students are at risk for increased educational debt, due to bank-affiliated campus dedit cards that come with high fees, insufficient consumer protections, and few options. Financial institutions now have affinity partnerships with almost 900 campuses nationwide, grafting bank products onto student IDs and other campus cards to become the primary recipient of billions in federal financial aid to distribute to students.

“Campus debit cards are wolves in sheep’s clothing,” observed Rich Williams, U.S. PIRG Higher Education Advocate and report co-author. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

The Campus Debit Card Trap, a new report released by the U.S. Public Interest Research Group Education Fund, finds that banks and financial firms now control or influence federal financial aid disbursement to over 9 million students by linking checking accounts and prepaid debit cards to student IDs. For decades, students would receive their aid by check, without being charged any fees to access their student aid. Now, students end up paying big fees on their student aid, including per-swipe fees of $0.50, inactivity fees of $10 or more after 6 months, overdraft fees of up to $38 and plenty more. Financial institutions aggressively market or default students into their bank accounts to maximize these fees.

A well-structured debit card program can provide benefits to students, but many current programs provide little to no choice, while high fees on grant and loan money leave students in deeper debt.


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Response to KansDem (Original post)

Tue Jun 19, 2012, 10:10 AM

1. If these loans and grants are to pay for an education how many times does it need to be swiped?

Seems like to pay a college for their tuition would only require about one swipe.

Can these loans and grants be used for anything beside paying tuition?

I must be missing something here.


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Response to NNN0LHI (Reply #1)

Tue Jun 19, 2012, 10:24 AM

2. I applied for and was awarded an NDSL loan for my masters degree program...

It was one check that I deposited into my bank. I used it for tuition, books, supplies, and living expenses. for the semester. I also had a part-time job.

IIRC, I did this three times and finished my masters.

I repaid the loan--the interest rate was much lower than GSL loans.

Of course, this was in the days before debit cards...

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Response to KansDem (Reply #2)

Tue Jun 19, 2012, 10:32 AM

4. I had no idea that school loans and grants could be used for living expenses

I always thought college loans and grants were to be used to pay the school for tuition.

Learn something new every day I guess.


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Response to NNN0LHI (Reply #4)

Tue Jun 19, 2012, 11:08 AM

5. I remember I was required to watch a video during the application process...

It opened with a scenario where a student receives his check and returns to the dorm. He announces "I got my loan!" and his dorm mates react with "All right! Let's party!" They all start leaving the dorm like they're going to go out drinking after the student cashes his check, but a voice-over says, "Wait! Here are some facts about your student loan...." Then the video pointed out the need and advantages of prudently managing the loan. The video concluded with the student realizing the awesome responsibility that came with his loan, so he says, "No, thanks, fellows! I'm depositing this check in my bank for my education!" or something similar. Of course his dorm mates are disappointed but the smile and look of satisfaction on the student's face shows he was prepared to use his loan wisely.

This was the 1980s...

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Response to NNN0LHI (Reply #1)

Tue Jun 19, 2012, 10:28 AM

3. From what I can gather in a quick scan of the report...

...it's about the potential for sticking swipe fees onto every function where a swipeable student ID is used: library book checkout, copy & print services, campus bookstore, entering a fitness center or sporting event, bike-share programs, dorm access, "campus cash" functions like meal plans, off-campus financial purposes (basically local retailers, but how this interacts with financial aid requires more reading than I have time for at the moment) as well as basic financial aid for tuition. Plenty of swipes that may or may not be subject to fees, depending on what's in the contract between the bank and school.

From just the skimming I don't know if this is currently a problem, but if there aren't safeguards in place to protect students from a bank from abusing its fee structure, there certainly should be.

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Response to JHB (Reply #3)

Tue Jun 19, 2012, 12:01 PM

7. The campuses separate out financial and non-financial applications.

Not a problem.

US PIRG often forgets that there's a status quo. They assume that there's no cost to using credit cards, bank debit cards, checks, or cash. Not just "no cost at the point of service for students." No cost.

Let's start school-side, school as funding source. Direct deposit of fin aid. The reason is the same as any other direct deposit--IRS, employer, etc. Fewer workers, faster turnaround time, less opportunity for checks to be lost or stolen. I'm not sure how widespread the obligatory deposit of the full amount to a student-ID-linked card is. Hard to use that kind of card for rent. Some money comes linked to campus-based uses, such as books or research, though.

Okay, let's look at merchant-side, school (or others) as sellers.

Cash is expensive. It slows down transactions and increases labor costs and can be inconvenient when you're trying to break a $20 and all you have is 1 10 and a mess of change--and then, having given out your change, your primary sale is a $0.55 cup of coffee. And, from time to time, cash tends to vanish. Cash, bad.

Credit cards and debit cards are charged to students indirectly. Books, coffee, shirts are more expensive because of them. The school I was at held off a price increase by investing in better POS devices: it went to a smart card, which the university wanted for its own reasons, and implemented a cash-deposit system so students could use their smart card "like cash." It was a large school and, yes, students ultimately paid for all the tech. Except that it actually cost less than cash. It wouldn't have worked on a fee-per-transaction basis since most of the swipes were for less than $2. (The secondary school I work at now has precisely this system.)

Now let's look student-side, from the consumer's POV.

Students using all plastic still paid in higher costs. And if you used checks that increased transaction time that you'd inevitably be billed for and, when I was in school, there was a per-check fee and a monthly fee. If you put the money in savings and your balance was too low, there was an account fee for that.

Still, you could always use cash. That would avoid the check or bank fee. But if you lose $50, it's lost; you lose your card, odds are the clerk would notice that the face on the card wasn't yours--and if you reported it whatever balance you had was safe. It's not like cash is risk and cost free, either.

The real downside was that students could use their smart card stupidly. Yeah, they could withdraw all their money (still could, to be honest) and blow it all in the first week of school. But cards are less money-like. It's easy to get carried away and drain the sucker early on and then be on emergency rations for the remaining 13 or 14 weeks of the term. (I think this is the bigger problem, to be honest, but it's not a US PIRG thing--students are pure and good and kind, and all things bad are the administration's fault. Can't blame student foolishness on the admin, so blame who can can for what you can.)

It's a US PIRG press-release concerning a US PIRG report advocating for students.

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Response to NNN0LHI (Reply #1)

Tue Jun 19, 2012, 11:55 AM

6. People should say "No" to debit type cards and send a message...we're offered for flex spending

expenses and my wife always says, "Get the debit card, it's sooooo much easier...." - well sorry, but the debit card is $12 PER MONTH USER FEE!!!!! We only take out $500 a year or so, so that's 1/5th of that going to card fees. I don't mind the extra work to send in my receipts if it's between that and paying $140 per year, which completely negates the savings of the tax fee anyways.

Just say NO!!! Many times there is a choice and if there is ever any fees, don't do it.

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