Campus Debit Cards: Students Should be 'Fully Informed' with 'Unbiased' Options

Campus Debit Cards: Students Should be 'Fully Informed' with 'Unbiased' Options An increasing number of colleges and universities have partnered with financial firms to provide debit and prepaid card services for students. But as the number of those agreements grow, questions have arisen over fees, and issues such as student choice and full transparency.
“The financial marketplace functions best when consumers are fully informed and have unbiased information,” the U.S. Government Accountability Office (GAO) reports.
At least 852 schools, or 11 percent of U.S. colleges and universities, had agreements to provide debit or prepaid card services to their students as of July 2013, the GAO said.
Most offered students the ability to receive federal student aid and other payments on a card. These schools were disproportionately large; their enrollments constituted about 40 percent of all postsecondary students.
However, the percentage of students enrolled in their schools’ college card programs was unknown.
“In the majority of agreements, the schools also outsourced to their card provider the process for paying financial aid and other funds via college cards and other methods,” the GAO said. “Some schools also used college cards as student identification.”
Agreements Should be Made Public
The GAO recommends requiring financial firms providing debit and prepaid card services to colleges to file their agreements for public review.
The dominant such card provider was Higher One, a nonbank financial firm that had a 57 percent market share in 2013, as measured by number of card agreements.  In 2012, Higher One came under fire after students reported being stuck with high ATM fees because the company did not offer convenient access.
In its report this week, the GAO found that fees charged by college card providers were similar to fees incurred by bank-issued debit cards. However, two of the largest card providers charged fees for PIN purchases.
The GAO also concluded that the Department of Education should better specify what constitutes convenient access to ATMs or bank branch offices for students receiving financial aid funds.
U.S. education officials should also develop requirement for schools and card providers to present neutral information to students about their options in receiving federal aid.
Both the Department of Education and Bureau of Consumer Financial Protection agreed with the GAO, the report says.
Here are the three primary areas of concerns as outlined by the GAO:
GAO found that fees charged by college card providers generally were comparable with those for similar products provided by banks, although some college card fees were slightly higher than those of credit unions. However, two large providers charged a fee for card purchases using a personal identification number (PIN) rather than a signature—a fee mainstream debit cards typically do not charge. The total fees students pay are not known, and some providers declined or said they were unable to provide these data to GAO. In 2012, Higher One settled with the Federal Deposit Insurance Corporation, which alleged unfair and deceptive practices that resulted in consumers paying higher fees.
ATM access.
Officials at nine selected schools generally did not report significant issues with the availability of fee-free automated teller machines (ATM) on campus. Although Department of Education regulations for college cards require that schools ensure “convenient access” to fee-free ATMs or bank branches for students receiving federal student aid payments, the agency has not specified what constitutes this level of access. The lack of a more specific definition may make avoiding unnecessary fees difficult for students when making cash withdrawals of federal aid.
GAO found instances in which schools or card providers appeared to encourage students to enroll in a college card, rather than present neutral information about payment options. The financial marketplace functions best when consumers are fully informed and have unbiased information. However, schools may have incentives to influence student choice because some receive payments from card providers based on the number of card accounts or transactions, leading some consumer advocates to question whether schools always act in their students’ best interests.
Furthermore, the contracts between schools and card providers are not publicly available and data on these cards are limited, in contrast to another college-related product—affinity credit cards bearing the institution’s name or logo—for which key information must be disclosed. Increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest.

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