With the transition from checks to debit cards for disbursing college student aid, financial institutions have found a new way to make money that at the same time has increased debt risks for young people.

 

Today some universities arrange for students to receive their student loans and other assistance through debit cards issued by banks partnering with universities. Other universities sell credit card companies the exclusive right to market their products on campus. These financial firms provide the cards in exchange for the right to charge a multitude of fees, such as per-swipe, inactivity and overdraft fees. 

 

“Financial institutions aggressively market or default students into their bank accounts to maximize these fees,” according to the U.S. Public Interest Research Group, which issued a new report (The Campus Debit Card Trap).

 

According to the consumer protection group, “students are at risk for increased educational debt, due to bank-affiliated campus debit cards that come with high fees, insufficient consumer protections, and few options.”

 

Nearly 900 universities have partnered with banks, including the University of Florida, University of Michigan, University of Pennsylvania and Northwestern.

 

Some financial firms offering the debit cards rely almost exclusively on this business. Higher One earns 80% of its revenues from the cards while working with 520 colleges that enroll 4.3 million students. Among the banks, the most active in this field are US Bank with card agreements at 52 campuses with enrollment of 1.7 million and Wells Fargo at 43 campuses with enrollment of more than 2 million students.

 

“Campus debit cards are wolves in sheep’s clothing,” said 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.”

                                                                                                                                                     -Noel Brinkerhoff

 

To Learn More:

Banks Skim Millions in Fees from Student Aid Using Debit-Card-Linked Student IDS (U.S. PIRG)

The Campus Debit Card Trap: Are Bank Partnerships Fair To Students? (U.S. PIRG Education Fund) by Rich Williams and Edmund Mierzwinski, U.S. PIRG) (pdf)

On Campus, New Deals With Banks (by Andrew Martin, New York Times)

Banks Quietly Adding New Fees (by Noel Brinkerhoff, AllGov)