College Debit Cards Skim Millions from Student Aid

More than 9 million college students are at risk for even higher debt because of bank-affiliated, campus debit cards that come with high fees, weak consumer protections and few options.
Many of these students are already mired in mounting student loan debt.
Banks are increasingly forming partnerships with colleges, almost 900 campuses nationwide so far, crafting bank products onto student IDs and other campus cards, according to Campus Debit Card Trap, a new report by the U.S. Public Interest Research Group Education Fund.
These cards are becoming the primary vehicle for billions in federal financial aid  distributed to students
“Campus debit cards are wolves in sheep’s clothing,” said Rich Williams, report co-author.  “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”
The report shows how banks and financial firms now control or influence federal financial aid disbursement to more than 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.
But 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, and overdraft fees of up to $38, the report found.
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, as high fees on grant and loan money leave students in deeper debt.
“Every penny of financial aid money should go to educational expenses, not an education in high bank fees,” Williams said.
Many of the country’s largest colleges already have such agreements.
Currently, 32 of the 50 largest public 4-year universities, 26 of the largest 50 community colleges, and 6 of the largest 20 private not-for-profit schools have debit or prepaid card contracts with a bank or a financial firm, according to U.S. PIRG Education Fund research.
The biggest firm in the business, Higher One, earns 80 percent of its revenues by siphoning fees from student aid disbursement cards, totaling $142.5 million of its $176.3 million total revenues in 2011, according to SEC filings.
These fees include ATM and other transaction fees, overdraft fees, and interchange fees imposed on merchants who accept cards.

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