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The Campus Debit Card Trap
The Campus Debit Card Trap, a new report released by MASSPIRG Education Fund, finds that banks and financial firms now control or influence federal financial aid disbursement to over 9 million students by linking their 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 financial aid. Now students end up paying big fees on their student aid, including per-swipe fees of $.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 and their bottom lines.
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.
Additional findings in the report include:
Millions of students are affected. Almost 900 of the 7,300 campuses participating in the federal financial aid program now have a banking partnership. Higher One, the biggest financial firm, has partnerships with 520 colleges that enroll 4.3 million students. Wells Fargo, the biggest bank in the market, partners with 43 campuses that enroll over 2 million students. Currently, 32 of the 50 largest public 4-year universities, 26 of the largest 50 community college and 6 of the largest 20 private not-for-profit schools have debit or prepaid card contract with a bank or a financial firm, according to MASSPIRG Education Fund’s research.
Financial institutions are making millions of dollars. The biggest firm in the business, Higher One, makes 80% 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.
The most-impacted students are among the neediest. Students most reliant on financial aid come from low and moderate income backgrounds. Roughly 40% of first-year students are first-generation college students, and 25% of all students are both first-generation and low income.
The service appears to be endorsed by the colleges. Huntington Bank paid $25 million to co-brand and link their checking accounts with Ohio State University student IDs. Other schools receive substantial payouts, revenue sharing deals, and large reductions in administrative costs.
The report urges colleges and policy-makers to ensure that students have an unbiased choice of where to bank and pushes for the elimination of fees charged to access student financial aid. Finally, the report lists tips for student consumers to avoid these high fees.
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