Almost 900 campuses across the country have affiliations with banks now. Supposedly, these partnerships offer students an easier way to access financial aid with a campus debit card that can be used anywhere. However, huge fees are sucking up much of this financial aid. To make matters worse, these cards offer very limited options and weak protection for consumers. A recent report by the U.S. Public Interest Research Group shows that over 9 million college students who used to receive their aid fee-free through a check are now paying tremendous fees for the supposedly better way of being paid via debit card.
The Fee Trap
The fees for using these debit cards may seem harmless, but they quickly add up, taking valuable cash from the pockets of students who need it to survive. Many cards involve a fee of 50 cents for every swipe, a $10 or larger fee for cards that are inactive for six months, fees of as much as $38 per transaction for overdrafts, and much more. Financial institutions aggressively market these cards, and some students are put into the accounts by default.
The Big Business of Robbing Students
Of the 900 campuses with banking partnerships, 250 have deals with Higher One, the largest financial firm. These 250 schools have a combined enrollment of 4.3 million students, and one out of every eight college students who receive financial aid receive their disbursements through Higher One accounts.
Wells Fargo, another major player, has partnerships with 43 campuses that enroll more than 2 million students. According to U.S. PIRG Education Fund research, at this time 32 of the country’s 50 biggest public four-year institutions, 26 out of the 50 largest community colleges, and 6 of the top 20 private schools have contracts with a financial institution or bank.
It’s All About the Bottom Line
Higher One earns 80% of its total revenues from student aid disbursement card fees. This amounted to $142.5 million in 2011, according to data from the SEC. This money represents transaction fees, ATM fees, interchange fees on merchants who take the cards, and overdraft fees. Higher One and other institutions like it are riding high on money taken from struggling college students. In fact, the students who rely most heavily on federal financial aid come from low-income families. Around 4 out of every 10 college freshmen are first-generation students, and nearly 3 out of every ten are also from low-income backgrounds.
Colleges Are Profiting
Why are colleges promoting these cards? The answer is simple…there is money to be made. Ohio State University received $25 million to link Huntington Bank checking accounts to student IDs. Another school, Arizona State University, makes $15 for every new MidFirst Bank account linked to a college ID. Many other schools see similar payouts, share revenue, and enjoy tremendous discounts on administrative fees. Since most students have trust in their schools, around 80% of those receiving financial aid choose to get disbursements through these cards.
What You Can Do
As a student, don’t assume that the campus-endorsed account is your best bet. Shop around for free checking and check carefully for overdraft and other fees. Do not opt in to overdraft protection programs, which may encourage you to spend money you don’t have. When making a choice, look for one that will allow you to easily access your money for free. Check with the Consumer Financial Protection Bureau to get more information about campus checking accounts and banking. Finally, let your school know that you feel these accounts are a bad deal for students and that you do not approve of their profiting at the expense of students.