“Campus Debit Cards Are Wolves in Sheep’s Clothing” According to Report

Yesterday, we wrote about college students and credit cards.  Today, we have information about college students and debit cards.  A study released recently by theU.S. Public Interest Research Group, “The Campus Debit Card Trap,” reports that almost 900 campuses across the U.S. have formed affinity partnerships with banks and financial companies to put a student’s financial aid on debit or prepaid cards that carry sizable fees.  According to the report, this puts 9 million students at risk for increased educational debt due to the high fees and insufficient consumer protections. 

With colleges experiencing major cutbacks, these deals bring in extra revenue.  The deals can help colleges reduce the cost of distributing financial aid by outsourcing, but they aren’t always in the best interest of the students.  Rich Williams, co-author of the report said, “Campus debit cards are wolves in sheep’s clothing.  Students think they can access their dollars freely, but instead their aid is being eaten up in fees.” 

Findings from the study include:

The largest firm in these partnerships, 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 revenue in 2011.  These fees include ATM and other transaction fees, overdraft fees, and interchange fees. 

Some of the fees highlighted in the report are:

a $28 overdraft fee for each day an account is overdrawn, for up to 14 days

a charge for reloading pre-paid debit cards or for depositing money at ATMs of up to $4.95 per transaction

charging $0.50 if students use their card as a debit rather than a credit

charging a $10 fee if another person tries to load money onto the student’s card electronically but the transaction is canceled because the other person’s bank account has insufficient funds

charging a fee of up to $0.60 just for checking their balance at an ATM

The neediest students are affected the most, many of them first-generation college students. 

The service appears to be endorsed by the colleges.  As an example, Huntington Bank paid $25 million to co-brand and link their checking accounts with Ohio State University student IDs.  Other schools receive sizable payouts, revenue sharing deals, and large reductions in administrative costs. 

The report recommends that colleges and policy makers, such as taking steps to ensure students have an unbiased choice of where to bank and that there are no fees charged to access their financial aid.  It also includes tips for ways student consumers can avoid these high fees. 

Jackie is the Operations and Education Foundation Assistant with the BBB.  She assists consumers with business inquiries, and does presentations to senior groups and high school students.  She is a regular contributor to the blog.