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Colleges and Prepaid Card Companies: Strange Bedfellows?

A new report from the U.S. Public Interest Research Group (PIRG) makes more than a few startling revelations regarding financial literacy and the disheartening agreements many of the nation’s colleges make with fee-heavy prepaid debit card companies. The report, titled The Campus Debit Card Trap, uncovers many truths that are anything but student-friendly. If you’ve ever been a college student who relied on financial aid, odds are, you’ve received your checks via traditional snail mail. Now, though, this report shows a new and troubling trend.

ID and Debit

Nearly 900 colleges and universities have contracted with financial institutions

in order to tie campus records to bank accounts, effectively turn student IDs into debit cards, and disperse aid to more than 9 million students through those ID/debit cards.

But there are many problems – and many that are swept under the rug. Other issues include the practice of aggressive marketing strategies by partnering companies on student choice and weaker consumer protections – especially considering these shortages are affecting young adults who’ve not begun to even fully understand the repercussions. One example provided suggests college students figure if their college is endorsing one product over another and if that school is allowing that financial company to use the ID card as a debit card, then it can’t be a bad thing. Unfortunately, too many times, it is and worse – the student believes he has no other options.


One company, HigherOne, has contracts with more than 500 colleges around the nation. It processes almost 13% of all federal and at least 80% of its profits come from the massive fees it charges college students. While tuition is automatically deducted from student aid payouts before the student ever even sees it, by the time he goes to buy books, cover living expenses, withdraw cash or use the card in any other manner they’re hit with a lot of fees.

There’s a $0.50 swipe fee for each and every purchase made on their cards, a massive wire transfer fee that makes it difficult for students to justify moving the money over to their checking accounts, overdraft fees close to $40 each and high cash withdrawal fees from ATMs. Often, parents aren’t even aware of the fees if the student’s mail arrives on campus versus their family address. This further complicates matters.

Other key findings include close to 1000 “partnerships” between colleges and banks or other financial entities that affect 9 million college students. PIRG also revealed that 32 of the 50 largest public four year universities, 26 of the largest 50 community colleges and 6 of the largest 20 private not for profit schools had debit or prepaid card contracts with at least one bank or a financial firm. Of banks, US Bank had the most card agreements – 52 campuses with over 1.7 million students. Up next, Wells Fargo had card agreements at schools with the most students- its contracts can be found on 43 campuses
that have over 2 million students.

First Generation

The report also reveals 40% of college students receiving aid are first-generation college students and 25% also qualify as being “low-income.” They are likely inclined to trust their educators but are instead footing the bill for schools to get payouts and revenue sharing deals. The question is why this practice has been allowed to continue.

Campus debit cards are wolves in sheep’s clothing. Students think they can access their dollars freely, but instead their aid is being eaten up in fees,

said Rich Williams, the higher education advocate for the US PIRG and co-author of the report, in a statement announcing its release.

Every penny of financial aid money should go to educational expenses, not an education in high bank fees.

PIRG Recommendations

There are no shortage of recommendations, according to PIRG. The need for increased oversight by the Consumer Financial Protection Bureau should be top priority. It also advocates giving students many choices when it comes to their finances. Education is important too since these young adults have likely not experienced how confusing and overwhelming the American financial sector can be. They should also be empowered to decide for themselves how they’d like to receive financial aid. This would help them avoid fees while providing lessons that can only benefit them in their future.

Not only would such an approach help them avoid fees in the short term, but it would also provide life lessons that would have a positive on future financial performance and the economy in general. Indeed, transparency is key and the CFPB has already begun its efforts of putting into place better compliance guidelines for students and their families. Much like the credit card complaint database, there’s soon to be a similar database offered to these young adults so that these companies – and colleges – will be held accountable. It’s believed these efforts will be in place before the year end.

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