College Debit Cards: Actions Needed to Address ATM Access, Student Choice, and Transparency
Published: 2014-02-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: A growing number of colleges and universities have entered into agreements with financial firms to provide debit and prepaid card services for students. As the number of agreements has grown, questions have arisen over fees and issues such as student choice. This report examines (1) the functions of college cards and the characteristics of schools and card providers offering the cards; and (2) benefits and concerns regarding these cards. GAO reviewed relevant federal laws and regulations, developed a tally of card agreements by reviewing industry reports and school and provider websites, and analyzed data and interviewed officials from federal agencies, banks and other financial firms, students, and industry and consumer groups. GAO selected nine schools (which vary by program length and sector) for extended interviews and data collection.
section_title: What GAO Found
paragraphs: 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, and 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. Some schools also used college cards as student identification. The dominant provider was Higher One, a nonbank financial firm that had a 57 percent market share in 2013, as measured by number of card agreements.
Benefits of college cards can include convenience for students and cost savings and efficiencies for schools, but concerns exist in a number of areas:
Fees. 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.
Neutrality. 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.
section_title: What GAO Recommends
paragraphs: Congress should consider requiring that financial firms providing debit and prepaid card services to colleges file their agreements for public review and provide other relevant information. The Department of Education should (1) specify what constitutes convenient access to ATMs or bank branch offices for students receiving federal student aid funds and (2) develop requirements for schools and card providers to present neutral information to students about their options for receiving federal student aid funds. The Bureau of Consumer Financial Protection agreed with GAO's matter for Congress. Education agreed with GAO's recommendations to it and said it will address these issues in an upcoming process to develop new rules.

section_title: Letter
paragraphs: In recent years, a growing number of schools have begun offering  banking products to their students in the form of debit and prepaid cards  issued through agreements with financial services providers. These  college cards provide students with debit or checking account services,  but also can serve as student identification cards or be used to deliver  student aid. Some federal agencies, consumer advocacy groups, and  members of Congress have raised concerns over issues associated with  college cards, such as the fees students can incur, including when  accessing federal student aid. In fiscal year 2012, the Department of  Education (Education) administered federal student aid programs that  provided about $142 billion in grants and loans to 15 million students.
In this report, we review issues related to college debit and prepaid card  agreements, examining (1) the functions of college cards and the  characteristics of schools and card providers offering the cards, and (2)  benefits and concerns regarding these cards. To characterize the college  card marketplace and examine issues surrounding use of the cards, we  reviewed relevant federal laws and regulations and documentation from  federal agencies, including Education, the Federal Deposit Insurance  Corporation (FDIC), the Bureau of Consumer Financial Protection (also  known as CFPB), and the Board of Governors of the Federal Reserve  System (Federal Reserve). We also interviewed representatives of these  agencies. We collected and analyzed information on schools’ agreements  with college card providers and developed a tally of current card  agreements by reviewing industry reports, interviewing college card  providers, and obtaining information from school and provider websites.
We also used data from Education’s Integrated Postsecondary Education  Data System (IPEDS) to analyze the student and institutional  characteristics of these schools and compare them with the overall  college and university population. We assessed the reliability of the  IPEDS data by reviewing documentation about the systems used to  produce the data and considering our previous use of the data, and we  determined that the data were sufficiently reliable for our reporting  purposes.
We selected nine institutions with college card agreements for extended  interviews and data collection. We selected this nongeneralizable sample  by focusing on schools with larger enrollments and higher proportions of  students receiving federal student loans, and included a mix of school  types (2- and 4-year, public, nonprofit, and for-profit) and geographic  locations. We examined online and paper materials provided to students  at these nine schools, and we reviewed card agreements from five of  them, representing about 51 percent of the student population at the nine  schools. We interviewed student government leaders at five of these  schools where we could arrange meetings with students. In addition, we  interviewed representatives of eight banks and financial firms that are the  largest providers of college cards, composing about 90 percent of the  market we identified. We reviewed college card contracts and other  publicly available information on cardholder fees for these eight providers.  For comparison purposes, we reviewed information on fees for similar  checking accounts from five other large national banks and average credit  union account fees published by the Credit Union National Association.  We reviewed documentation from other federal programs that distribute  benefits electronically on cards, including those administered by the  Departments of Labor, Agriculture, Health and Human Services, and the  Treasury. We also interviewed industry executives and consumer  advocates. See appendix I for a detailed discussion of our scope and  methodology.
We conducted this performance audit from November 2012 to February  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Schools with college card agreements generally provide students with  access to either a debit or prepaid card. Each type of card offers a  cashless means to make purchases and access funds, but there are key  differences between them.
A debit card is issued by a bank and linked to a customer’s checking  account. It allows the customer to withdraw cash from the account or  to pay for goods and services. In a debit transaction, the amount of  the transaction is withdrawn from the available balance in the  cardholder’s account.
Prepaid cards appear and function much like a debit card, but are not  linked to an individual consumer’s bank account. Instead, an amount  is deposited into a pooled account, and withdrawals or purchases are  made against the predeposited amount. Prepaid cards can be single- use or reloadable. Both banks and nonbank financial firms issue  prepaid cards, but banks issue the majority of them, according to  FDIC.
Schools can use college cards to make payments to students, such as  financial aid or tuition refunds when a student withdraws from a class.
The majority of financial aid is provided by federal student loan and grant  programs, although students also can obtain aid from states, school  grants, and other sources. Federal student aid can be used to pay for  tuition and fees, room and board, books, supplies, and other living  expenses. The aid is generally paid directly to the school, which deducts  its charges, such as tuition and fees. If a student’s total payments from all  sources, including financial aid, exceed the school’s charges, the school  pays the difference (also known as a credit balance or credit balance  refund) to the student. The bulk of the funds paid to students may be  federal student aid remaining after paying for tuition and fees, and the  money is intended to help students pay for nonschool items related to  their education, such as living expenses and transportation costs. Figure  1 depicts the process for paying financial aid and other funds to students.  Schools can manage these payments themselves or contract with a third  party to administer the process.
When a school pays federal student aid funds to a student, the process is  subject to Department of Education requirements, which are aimed at  ensuring that students receive the funds in a timely and effective  manner.student aid funds that exceed the school’s charges directly to students as  soon as possible, but no later than 14 days after the first day of classes or  the date the funds were posted to the student’s account (whichever  occurs later). Schools must pay these funds to students in cash or by  check or electronic transfer to either a bank account, a checking account  that can be accessed by a debit card, or a prepaid card.
For example, Education requires schools to pay any federal  Furthermore, schools that use debit and prepaid cards to pay federal  student aid funds must follow additional requirements. As shown in table  1, Education’s requirements focus on ensuring that students have free  access to federal student aid and are not forced to use a particular debit  or prepaid card. And if schools contract with a bank or financial firm to  manage the payment of federal aid to students, Education requires  schools to ensure that the contractors comply with applicable regulations  and provisions for federal aid. Education also encourages, but does not  require, schools to annually disclose a breakdown of the average annual  costs their students incur in using college cards.
In addition to Education’s requirements, other federal laws and  regulations provide consumer protections applicable to all debit and  prepaid cards. For example, Section 5 of the Federal Trade Commission  Act prohibits unfair or deceptive acts or practices. The act applies to  banks, as they are engaged in interstate commerce, and federal banking  agencies have authority to enforce Section 5 against entities they  supervise. CFPB has authority to enforce prohibitions on unfair and  abusive acts against certain institutions and service providers. Regulation  E, which implements the Electronic Fund Transfer Act, includes  disclosure requirements and limits on cardholder liability for debit cards  (but not prepaid cards). (For more information on federal protections for  debit and prepaid card users, see app. IV.) CFPB has authority to enforce  the Electronic Fund Transfer Act and certain other federal consumer  financial laws against certain institutions and service providers, while  ensuring that consumers can access financial products and services.  CFPB also can issue rules and examine certain institutions.
section_title: College Cards Are Used for Multiple Purposes and Are Offered by At Least 852 Schools
paragraphs: College cards offer a range of financial services to students, including  delivering financial aid and making other payments. Of about 7,600  colleges and universities participating in federal student aid programs, we  found 852 (11 percent) had college card agreements. Because these  schools were generally larger, their student populations represented  about 40 percent of total enrollment. However, even when schools have  college card agreements, not all students participate in their school’s card  program. One provider, Higher One, had more than half the market for  college cards.
subsections: section_title: College Cards Can Be Used for Several Functions
paragraphs: The  purchases in stores and online. Debit cards link to a standard bank  account, with check-writing capability and access to services at the  bank’s branch locations.
Paying Financial Aid and Other Funds to Students. College debit and  prepaid cards can be used to deliver federal student aid or make other  payments. As part of its card agreement, the school can contract with the  card provider to administer the student payment process on the school’s  behalf. Generally, students can elect to have their funds deposited to the  account associated with their college card, or they can choose to receive  their funds by direct deposit to another account or in cash or by paper  check. More than 80 percent of the schools we identified with card  agreements indicated that students could use their cards to receive  financial aid and other funds from the school. By school sector, this  included 88 percent of public schools with card agreements, 70 percent of  nonprofit schools, and 100 percent of for-profit schools. (See app. II for a  discussion of other federal programs that use prepaid or electronic benefit  cards to provide payments to beneficiaries.)
Student ID card. In one-third of schools we identified with card  agreements, the student’s ID also can be used to access banking  services. In these cases, either the school or the card provider issues  student ID cards to all students. Students then can choose whether to  have their ID card also serve as a debit or prepaid card.
section_title: At Least 852 Schools, Including Many Large Public Colleges, Have College Card Agreements
paragraphs: In our review of industry reports and school and provider websites, and  our interviews with card providers, we identified 852 U.S. colleges and  universities with college card agreements as of July 2013, representing  about 11 percent of all schools participating in federal student aid  programs. However, schools that have adopted college cards were  disproportionately large—the enrollment at these schools represented  about 39 percent of all students at schools participating in federal student  aid programs (see fig. 2). In particular, 12 of the 20 largest schools by  enrollment had college card agreements.
We found card agreements were most common at public colleges and  universities. About 29 percent of public schools had card agreements,  compared with 6.5 percent of nonprofit schools and 3.5 percent of for- profit schools. In each school sector, 4-year schools also were more likely  to have agreements than 2-year or less than 2-year schools (see fig. 3).  For the student characteristics of age, race, and financial aid status, we  found that schools with college card agreements generally were similar to  schools without agreements.
Comprehensive data are not available on how many students choose to  enroll in a college card. We found a range of adoption rates among  schools and providers we interviewed. For example, the largest provider  reported that overall, 43 percent of students receiving financial aid  payments at its client schools opened debit accounts. However, the  adoption rate varied considerably by schoolfor example, 20 percent of  participating students at one school with which we spoke opted to open  accounts, compared with 75 percent at another school. At some schools,  officials told us that only students who were expected to receive  payments were offered cards. Conversely, other school officials told us  that all students received cards, but students might be less likely to  activate cards if they did not believe they would receive a payment from  the school.
Our analysis showed that public 2-year schools, or community colleges,  represented almost half of all schools that used college cards to make  financial aid and other payments to students. According to the National  Association of College and University Business Officers (NACUBO),  community college students are among those more likely to receive a  financial aid payment because they generally have low tuition and fees to  deduct from students’ available financial aid funds. In turn, according to  NACUBO, community college students are more likely to obtain funds  through a college card than other students.
section_title: One Nonbank Financial Firm Had More Than Half of the College Card Market
paragraphs: As of July 2013, one provider, Higher One Holdings, Inc., held about a 57  percent share of the college card market, as measured by number of  agreements between schools and card providers, as well as number of  students at schools with agreements, according to our analysis. Seven  other providers, which included bank and nonbank providers, represented  most of the rest of the market (see fig. 4).
Higher One, founded in 2000, is a nonbank financial firm that contracts  with banks to perform the banking functions associated with its college  cards, which include providing checking accounts, processing wire  transfers, supplying cash for ATMs, and issuing cards. Higher One  provides processing and other administrative services, including  managing customer service, and is responsible for the information  technology for managing the accounts. For 2012, Higher One reported  net income of $36.9 million on revenue of $197.7 million, with average  annual net income growth of 37 percent over the previous 3 years.  Seventy-six percent of its 2012 revenue derived from accounts opened by  students and other members of the campus community, including  accountholder fees and interchange fees. Company executives have  said that interchange revenue accounted for between 40 and 50 percent  of account revenue through the first three quarters of 2013. The  company’s other sources of revenue include managing financial aid and  other student payments for schools, and providing students and parents  with other financial services. In addition, Higher One receives fees from  its bank partners based in part on the amount of deposits in student  accounts that these banks hold. In May 2013, Higher One announced it  acquired the college card operations of Sallie Mae, which represented  about 7 percent of the college card market as measured by the number of  schools with agreements. While Higher One’s main business is college  cards, it also has been expanding into other school-related areas, such as  student data analytics.
The six other providers of college cards among the group of eight we  identified are:
U.S. Bank, PNC Bank, Wells Fargo Bank, and Citibank—large  banks that provide college card services among a number of other  financial products.
Blackboard, Inc.—an education technology and services company,  whose other products include online learning, campus commerce and  security, and school communication.
Heartland Payment Systems, Inc.—a payments processing firm,  active in credit, debit, and prepaid card processing, which has  expanded into the college card marketplace.
Like Higher One, Blackboard and Heartland use bank partners. Higher  One and some other providers said they have been seeking to expand  the number of schools with which they have college card agreements.  Some of the companies also noted they have been expanding their  offerings—for example, by adding the option of prepaid cards in addition  to debit cards, or by offering to administer a school’s process for making  financial aid and other student payments.
section_title: College Cards Can Benefit Students and Schools, but Concerns Exist about Fees, Student Choice, and Transparency
paragraphs: Benefits of college cards can include administrative savings for schools  and added convenience of use for students. In general, college card fees  were not higher than those associated with other banking products  available to students. The largest card provider’s practices in charging  fees, however, were the subject of an FDIC enforcement action in 2012,  which resulted in a settlement without admission of a violation of law. In  addition, other concerns with college cards include students’ access to  no-fee ATMs, schools’ influence over students’ banking and payment  choices, potential conflicts of interest for schools, and the lack of  transparency surrounding card agreements.
subsections: section_title: Benefits of College Cards Include Reducing School Costs and Offering Students Banking Options
paragraphs: School officials and college card providers cited several benefits to  schools of entering into college card agreements:
Electronic payment of funds. Several schools told us they  contracted with a college card provider primarily because they wanted  to reduce expenses by paying funds electronically rather than by  paper check, or to avoid the expense of developing an electronic  system internally. Processing paper checks is costly and labor- intensive, according to school officials, with one school official  estimating that it cost upwards of $25 to issue a paper check. Paper  checks are also vulnerable to fraud because they can be altered or  stolen.
Lower administrative costs. Even if schools have the internal  capability to process funds electronically, college card providers can  do so more cheaply, or at no expense to the school, according to card  providers and some schools. Although card providers may charge  schools for student payment services, officials from two schools told  us the cost under their card agreements was still less than half what it  would be to process the same transactions internally. For example,  officials at one school estimated the school saved about $0.75 on  each check and $0.15 on each direct deposit by contracting with a  provider. These small per-transaction differences can produce  significant savings for schools administering many transactions each  year. At one of the six schools we reviewed that contracted with a  card provider to manage student payments, the card provider  administered the process at no cost to the school.
Improved student ID cards. College cards can allow schools to  expand the functionality, or defray the cost, of their student ID cards.  For example, one school said the electronic building access provided  by its college card improved security because the previous ID card  could be altered easily and students were able to access buildings  simply by showing the card. One college card provider also said it has  helped schools defray the cost of student ID programs by providing  free card stock for printing the ID cards.
Revenue generation. As discussed later in this report, some college  card agreements include payments from card providers to schools— for example, based on student account activity—or provide other  benefits, such as administering student payments for schools at  nominal rates.
Reduced use of cash on campus. Some schools prefer the use of  college cards at the campus bookstore and other campus locations  because they find card transactions cheaper and more convenient to  manage than cash transactions, according to one card provider.
College cards also can benefit students, according to students, school  officials, and card providers we interviewed. Benefits they cited include  the following:
Access to banking services. College cards provide a way to enter  the mainstream banking system for students who do not have bank  accounts. Evidence suggests that some college students are  unbanked—that is, they do not have any kind of bank or other deposit  account at an insured depository institution. These students may  rely on alternative financial providers, such as check cashing services  and payday lenders, that have higher costs and lack consumer  protections available with a traditional bank account. For example,  officials at one school estimated that about 300 of their nearly 15,000  students were unable to get a traditional bank account.
Multipurpose convenience. When banking services are linked to a  student ID card, students may benefit from using a single card for  school and banking functions, such as campus building access, library  book checkout, ATM use, or purchases.
Quicker access to funds. When schools outsource the process for  making financial aid and other payments to a card provider, students  can get their funds faster, according to card providers and schools.  Card providers and school officials told us that funds are usually  available on college cards the same day the school releases funds to  the provider, compared with availability in 2-3 business days for direct  deposit to another account, or 5-7 business days for a paper check.
Students generally want to get their funds as quickly as possible,  according to students and school officials we interviewed, because  they can face large expenses at the beginning of a term for rent,  textbooks, and other college costs.
Financial education. Some college card providers offer financial  education and budget tools that can help students manage their  finances. For example, officials at one school said their college card  provider offered on-campus financial education sessions for students,  while officials at another school noted their card provider gave  students online breakdowns of their spending. One provider has given  grants for on-campus financial literacy efforts.
section_title: Most College Card Fees Are Comparable to Similar Bank Products; PIN Fees and ATM Access Are Concerns and Total Fees Paid Are Unknown
subsections: section_title: Fees Generally Comparable to Those Other Institutions Charge, Except for PIN Transactions
paragraphs: Most of the college card fees we reviewed generally were not higher, or in  some cases were lower, than those associated with a selection of basic  or student checking accounts at national banks. In particular, college  card accounts generally did not have monthly maintenance fees, while  the basic checking accounts we reviewed typically did (see table 2).  College card fees for out-of-network ATM use, wire transfers, and  overdrafts also were generally comparable with those of banks’ basic and  student checking accounts. However, fees charged by credit unions  typically were the same or lower than those charged by college cards. In  addition, college card fees are likely lower than those of alternative   financial services, such as check-cashing services, that some students  without bank accounts might otherwise use. See appendix III for more  detailed information on our fee comparison analysis.
One area where college card fees can exceed those of traditional bank  accounts is for purchases made using a personal identification number  (PIN). Two college card providers—Higher One and Citibank, which  together represent about 60 percent of the market—charge $0.50 for  transactions that use PINs rather than signatures. No basic or student  account that we reviewed for comparison purposes charged a transaction  fee for using the account’s debit card. Approximately one-third of all PIN  transactions are for less than $15, according to the Federal Reserve,  which can make a $0.50 fee a significant cost relative to the amount of  the transaction. While students can avoid the fee by authorizing their  purchase using a signature rather than a PIN, the signature option  involves using a keypad option labeled “credit,” which may be confusing  because the card is a debit card and not a credit card. In addition, CFPB  staff told us that some merchants make selecting the credit option more  difficult, because debit transactions offer them more favorable  interchange fees.
Some federal officials and students have expressed concerns that college  card fees are too high. In 2012, as part of its process to consider new  regulations on debit cards, Education received some comments criticizing  college card fees for being too high, unnecessary, and reducing the  amount of student aid available to cover college costs. Some public  comments submitted by students to CFPB in 2013 also complained about  high fees, including the PIN debit transaction charge. CFPB staff  similarly told us that while college cards in some cases had higher fees  than other products, they did not appear to offer any more attractive  features.
section_title: Out-of-Network Fees and ATM Access Have Been Raised as Issues
paragraphs: Consumer advocates and federal officials also have expressed concerns  about the extent to which students incur out-of-network ATM charges  when using their college cards and their ability to access fee-free ATMs.  As is typical for debit cards in general, all the college card providers we  reviewed charged no fee for withdrawals from ATMs within that card’s  network. Providers have charged fees up to $3.00 for withdrawals from  out-of-network ATMs, with the majority charging $2.50. Additionally,  operators of the out-of-network ATMs may impose a surcharge of their  own, which is typically about $2.00. One card provider noted that these  ATM fees can add up, because many college students make frequent  ATM withdrawals of small sums.
The number of in-network, fee-free ATMs available to students with  college cards varies significantly depending on the school and the card  provider. Our review of nine schools illustrated this variation: one large  school had 16 in-network ATMs on one campus, while a smaller school  had one. Five of the providers we reviewed also had contracts with ATM  networks other than their own to provide additional fee-free access to  students. However, at least one of these providers—Higher One—only  provides students access to its broader fee-free ATM network if they open  an account with a monthly maintenance fee, potentially reducing any  savings realized through the improved ATM access.
A 2012 report by the U.S. Public Interest Research Group (PIRG), a  consumer advocacy organization, also asserted that at some schools,  students may experience lengthy lines at college card ATMs or have  limited access to ATMs in school buildings that are not open 24 hours a  day. Officials at eight of the nine schools with whom we spoke generally  did not indicate that access to in-network ATMs was a significant or  widespread issue. One school acknowledged that sometimes lines of 20- 40 students formed at the ATM on the first day that funds were paid to  student accounts. We also found that for one large provider, 5 percent of  its ATMs were accessible 24 hours a day; however, the provider noted  that it does not control the hours of the buildings in which the ATMs are  located.
Education regulations for delivering federal student aid funds on college  cards require that schools ensure students have “convenient access” to  ATMs or a branch office where students will not incur any costs making  cash withdrawals from the bank in which the account was opened.  However, Education has provided a limited definition of what constitutes  such access—namely, that the branch office or ATMs must be located on  the institution’s campus, in institutionally owned or operated facilities, or a  location immediately adjacent to and accessible from the campus.  Although this definition provides some guidance, it does not take account  of such factors as actual ATM usage patterns or availability. Education  staff said that a better definition or more specific standards for convenient  access to fee-free ATMs may be needed, noting concerns that a single  on-campus ATM may not be sufficient and could result in students  incurring unnecessary fees. The department announced its intention to  develop new regulations for college cards in a May 2012 notice, but staff  told us they had been focusing on other regulatory priorities. However,  in November 2013 Education announced formation of a committee to  develop proposed regulations on college cards and other issues, with the  committee scheduled to begin work in February 2014. Any new  regulations may address the issue of ATM access and fees, Education  staff told us.
section_title: Data Unavailable on Total Fees Paid
paragraphs: Although college card fee schedules we reviewed generally were not  higher than those of basic or student checking accounts, little information  is available on the frequency with which students incur ATM, PIN, and  other fees, and the total amount of college card fees paid by students is  unknown. Several college card providers with which we spoke generally  were unwilling or unable to provide details or a breakout of their fee  revenues. However, one provider with a smaller share of the college  card market told us that in the specific case of student financial aid  payments, its experience was that students used 82 percent of such  funds without incurring fees. Although Education encourages schools to  disclose annually a breakdown of the average yearly costs incurred by  their students for using their college cards, none of the schools with which  we spoke tracked such costs. According to FDIC staff, some students  have complained of paying aggregate fees ranging from hundreds of  dollars to more than $1,000, but it is unknown whether such fee amounts  are typical.
Moreover, college card providers and school officials noted that students  can limit fees by adjusting their behavior. For example, students can  avoid fees in some cases by choosing to authorize debit transactions  using a signature rather than a PIN, or by avoiding withdrawals from out- of-network ATMs. Card providers and schools also told us that they help  students avoid card-related fees, such as by e-mailing alerts when  account balances are running low or encouraging students to avoid PIN- based debit transactions. However, there are limitations to any efforts to  help individuals improve their financial behaviors. Even when given  appropriate information, consumers may not make the most rational  financial choices. Behaviors such as procrastination and inertia can  mitigate against informed choice.
Recently, the largest college card provider faced an administrative  enforcement action for its fee-charging practices. In August 2012, FDIC  announced settlements with Higher One and a former bank partner, The  Bancorp Bank, for alleged unfair and deceptive practices related to how  Higher One charged fees for its student debit card account program,  among other things. practices for charging fees (for example, limiting the number of insufficient  funds fees charged on a single day to a single account) and pay  restitution of about $11 million to approximately 60,000 students. FDIC  also imposed civil money penalties of $110,000 on Higher One. FDIC  staff told us the restitution payments were made and that the agency  continues to monitor Higher One’s compliance with the consent order.
FDIC determined that the two companies violated Section 5 of the Federal Trade  Commission Act by charging student accountholders multiple insufficient funds fees from  a single transaction; allowing accounts to remain in overdrawn status for long periods and  allowing these insufficient funds fees to continue accruing; and collecting the fees from  subsequent deposits to the students’ accounts, typically funds for tuition and other college  expenses.
Neither Higher One nor The Bancorp Bank admitted to a violation of law  in settling the charges.
In addition, Higher One announced in November 2013 that it reached an  agreement in principle to settle a class action lawsuit for $15 million.  The company and two of its business partners were named as  defendants, with students alleging that Higher One misled students by  marketing its debit card as schools’ preferred method for making financial  aid and other payments, improperly steered them into depositing funds  into Higher One accounts, and charged excessive and inadequately  disclosed ATM and PIN fees. Higher One and the other defendants  denied that marketing of the Higher One account was deceptive and  contended that fees were fully disclosed and agreed to by the plaintiffs.
section_title: Students May Not Be Offered Neutral Options; Agreements Could Pose Conflicts and Are Not Always Transparent
paragraphs: Concerns have arisen over some school and industry practices that can  influence student options, especially when a college card is not  necessarily the best option for all students. One issue is whether  students’ choice to use a college card is unduly influenced by the nature  of information they receive about the cards. Another is the extent to which  schools’ decisions to enter into agreements may be motivated by benefits  the schools receive, rather than the best interests of students. However, it  is difficult for students and others to assess the influence of financial  incentives on school behavior due to the lack of transparency for card  agreements. Federal agencies have been reviewing these and other  college card issues and may take further action.
subsections: section_title: College Cards May Not Be the Best Option for All Students
paragraphs: According to some school officials and others we interviewed, college  cards may not be the best product for some students who enter college  with an existing checking account, or for those who need more  comprehensive banking services. Students with both a college card and a  separate account with another bank may find it costly or inconvenient to  manage both accounts concurrently. For example, officials at one school  told us that some students with existing bank accounts who choose to  open a separate college card account can incur fees transferring the  funds between accounts.
Some college card products also provide less robust banking services  and features than a traditional bank account. At its September 2013  forum on financial products marketed to college students, CFPB noted  that some student checking products offered by unaffiliated financial  institutions have more attractive options than some college cards, such as  automatic reimbursement of any ATM fee charged by an out-of-network  ATM operator. Prepaid cards in particular may be limited because they  may not offer students the ability to write checks, can charge fees for  making additional deposits, and provide limited access to a full-service  financial institution. Even full-featured college debit cards can have  limitations, such as the lack of conveniently located bank branch locations  near a student’s school or home and unresponsive customer service,  both of which were cited in public comments received by CFPB.
section_title: Presentation of Card and Payment Options Was Not Always Neutral, Raising Questions about Student Choice
paragraphs: Although schools cannot require students to use college cards, federal  officials and consumer advocates have raised concerns about the extent  to which students have been able to make fully informed choices about  whether to enroll in the debit or prepaid cards their schools offer. Schools  and college card providers can affect student choices in several ways:
School endorsement. Schools can appear to implicitly or explicitly  endorse their college cards, by virtue of the relationship with the  provider and co-branding of the card. Many students trust their  schools and, as a result, may view co-branding as an endorsement  and an indication their school has negotiated the best terms for them.  Education staff said anecdotal evidence supports that idea, noting that  students are more likely to sign up for an account when the debit and  ID functions are on a single card. Student leaders at four schools with  whom we spoke noted that such co-branding—such as a school  picture on cards or provider ATMs on campus—gave the appearance  of an endorsement by the school or the impression that there is only a  single provider.
Exclusivity. Provisions in card contracts that prohibit other financial  companies from providing services to students on campus can limit  student choice. Four of the eight card providers with which we spoke  said that at least some of their agreements with schools include such  provisions, such as barring other financial services companies from  locating ATMs or an office on campus or from setting up information  tables during student orientation.
Marketing. Card providers and schools market college cards directly  to students through various methods, including mailings, on-campus  presentations, and co-branded websites. Some card providers offer  marketing assistance or materials to schools. For example, one  provider told us it prefers assisting the school in developing  messages, because students pay more attention to the information if it  comes from the schools. Some contracts also call for schools to use  “best efforts” to promote and encourage use of the provider’s  account.
Our review of marketing materials and other information offered to  students found variations in the type of information provided to students  about their financial options. At some schools, students were presented  with an unbiased presentation of these options. For example, one school  emphasized that “you have the ability to select the option that is best for  you,” followed by a factual description of payment options. Some schools  also recommended direct deposit over their campus card. However, we  also identified instances in which payment options were not presented to  students in a clear or neutral fashion, and appeared to encourage  students to choose the college card over other options. Among these  instances were the following:
One provider, on a website on which students can select a method to  receive financial aid and other payments, displays an option where  students can immediately select the provider’s account. However,  students who want to select other options must work through  additional instructions, in which the provider continues to encourage  use of its product. While the college card payment option can be  selected online, an option for deposit to another account requires a  separate and more time-consuming submission of additional  documentation. The provider told us this requirement is an antifraud  measure, but the industry organization that oversees such payment  processing transactions told us deposits to another account can be  achieved equally well online.
One school and its provider, under a website heading of “Why should  I use the Card?” told students that it “makes everyday life easier on  and off campus.” The instructions for receiving funds by paper check  were less prominent and described a separate, multistep registration  process.
One school directly recommended its college card over the direct  deposit alternative and gave guidance to students who already had  selected direct deposit on how to switch to the card option.
In public comments received by CFPB, some students said they felt  pressured to sign up for college cards. For example, one student said that  signing up was “highly encouraged,” both during student orientation and  when provider representatives appeared on campus. Another described  being pressured by a provider representative even after saying she did  not plan to sign up. Had she not researched options, she said, she might  have been convinced the provider was the only choice. FDIC staff told us  that given current practices, it may seem to some students that they must  select the school’s college card to receive their funds.
Education guidance on college cards does not currently address the  marketing of the cards or the extent to which schools must inform  students about financial aid payment options, although schools are  required to inform students of the terms and conditions of college cards  before an account is opened.advisory, reiterating that schools cannot require a particular bank or card  to access funds, and advising students to shop around and use direct   CFPB recently issued a consumer  deposit to an existing account for receiving funds.us that requiring a clear and conspicuous affirmative statement that  students have a choice could enhance student awareness of options. In  addition, in its best practices recommendations for college cards,  NACUBO called for “a fair explanation of services  misleading,  biased, or aggressive marketing schemes.”
section_title: Payments to Schools May Create Potential Conflicts of Interest
paragraphs: Revenue-sharing agreements appear to be declining, but concerns  remain that the payments and other benefits schools receive from card  providers may motivate schools to encourage the use of college cards or  potentially choose the arrangement that provides the schools the most  revenue rather than one that provides students the best terms, according  to federal officials and consumer advocates. These payments from  providers to schools are generally either a fixed sum or tied to the number  of card accounts or the number of card transactions students make. In  addition to direct payments, schools can receive other financial benefits  from college card providers, such as rent for ATMs located on campus,  general marketing assistance for the school ID card program, or savings  on the administrative costs of disbursing financial aid.
We did not identify comprehensive information on the number of schools  with college cards that receive such payments. Three card providers with  which we spoke did not have revenue-sharing agreements with any of  their schools. In our review of nine schools, three had agreements with  card providers that included revenue-sharing based in part on transaction  activity or the number of students who open card accounts. One school  told us that it received $13,000 in 2012, based on $10 for each student  who activated the college debit card. Another school received $137,000 in  payments from the card provider in 2012, based on a formula that  included the total balance of student card accounts and the volume of  card transactions with vendors. (Partially offsetting that, however, was  $30,000 the school paid the provider for services.) A third school told us it  has received an average of about $400,000 annually over the life of its  contract, which is based in part on the number of students who opened  card accounts.
In addition, some schools—apart from the nine that we reviewed in  depth—have more comprehensive agreements with providers for  activities or financial services in addition to college cards, which can  provide considerably larger revenue to the schools. For example, one  large public university has a college card agreement with a national bank  that includes activity-based revenue sharing. In 2013, the bank was to  pay a royalty of $34 for each active college card account, or a minimum of  $1 million annually, according to contract documents. In addition, the  school has another agreement with the same bank that provides for $35  million over 25 years for such things as naming rights for a football  stadium, advertising, and other sponsorships. Similarly, in 2012, another  large public university signed a 15-year deal worth at least $25 million  with another national bank, which includes providing banking services to  the university, alumni, and staff and faculty, in addition to providing  college cards.
Education staff and some card providers said that revenue-sharing  agreements for college cards have been declining. Reasons for the  decline include the negative public attention the practice has received and  the reduced need for providers to offer revenue-sharing as an  inducement, they said. For example, Higher One recently stated that it  discontinued revenue-sharing incentives to new customers in November  2007 and has sought to terminate such provisions in existing agreements.  As of March 2013, about 5 percent of Higher One’s card contracts with  schools contained revenue-sharing provisions, which in 2012 paid an  average of $12,000 per school, the company said.
section_title: College Card Agreements Are Not Fully Transparent
paragraphs: Comprehensive information about the terms of agreements between  college card providers and schools was not available. Neither Education  nor CFPB collects all college card contracts. Some providers with which  we spoke noted that they consider the contracts with schools to be  proprietary or confidential, but in some cases the card issuers provided us  with “template,” or generic, contracts that omitted the terms specific to an  individual school. Among the nine schools we reviewed, five provided us  with copies of their contracts.
See 34 C.F.R. § 668.25(e)(2). Education’s general authority to request college card  contracts from schools is limited to instances when the contract involves processing any  aspect of the institution’s participation in federal student aid programs. incentive to encourage students to use a specific account or card  product.
In prior reports, we have cited the value of transparency in such areas as  improving program outcomes and strengthening oversight. NACUBO’s  best practices recommendations call for greater transparency of college  card agreements, stating that schools should publicly disclose the terms  of any agreements with third parties issuing college cards to students.  Some members of Congress also have cited the need for disclosure of  college card contracts, saying, among other things, that transparency is  needed to ensure that terms are fair and reasonable for students and the  agreements are free from conflicts of interest or improper incentives.
Pub. L. No. 111-24, § 305(a), 123 Stat. 1734, 1750 (codified at 15 U.S.C. § 1637(r)); 12  C.F.R. § 1026.57. College affinity credit card issuers must submit to CFPB annually,  among other things, copies of any college credit card agreements to which the card issuer  was a party during the prior year, the amount of any payments the issuer made to a  school or affiliated organization under the agreement during the same period, and the  number of credit cards opened under the agreement during the period. 12 C.F.R. §  1026.57(d)(2). The schools must disclose publicly any marketing agreement made with a  card issuer. 12 C.F.R. § 1026.57(b). information and make it readily accessible. CFPB maintains a public  database containing the affinity credit card agreements.
For student loans, disclosure requirements were enacted in 2008 after  lenders were found to be improperly offering schools inducements to be  placed on “preferred lender” lists. To help ensure that schools list lenders  that offer the best terms and conditions for students, schools that  maintain a list of preferred lenders must disclose the criteria used to  select the lenders and the loan terms and conditions, as well as notify   Similar  students that they need not borrow from a lender on the list. disclosure of college card agreements could allow interested parties to  review contract provisions and determine whether the agreements pose  any concerns related to incentives or conflicts of interest.
section_title: Federal Agencies Have Been Reviewing and Considering Further Regulation of College Cards
paragraphs: Education has been considering further regulation to address concerns  about college cards. After holding public hearings in 2012 and 2013,  Education announced in November 2013 that it was forming a committee  to develop proposed regulations on a variety of federal student aid issues,  including college cards. The committee is scheduled to begin work in  February 2014.
20 U.S.C. § 1094(h)(1)(C). those required for school employees who select preferred student  lenders. CFPB staff told us they have no specific schedule or outcome  planned for their college card work, including whether they will propose  any regulations.
section_title: Conclusions
paragraphs: College cards may confer benefits to schools and students, but they may  not be the best option for all students. Financial markets function best  when consumers are fully informed about financial products and how to  choose among them, and NACUBO has recommended that schools  present students with information about their college cards in a neutral  fashion. However, the information presented at some schools appears  biased toward encouraging students to choose the college card over  other options, and Education’s guidance does not address the  responsibility of schools to provide objective and neutral information to  students about their financial aid payment options. As a result, some  students may not be getting information that enables them to adequately  assess whether a college card best meets their individual needs and  preferences and is the most cost-effective choice among all options for  conducting financial transactions and receiving student aid.
On another key issueaccess to fundsEducation’s regulations require  that college card providers offer “convenient access” to ATMs or a bank  branch office where students can withdraw federal student aid without  incurring cost, but the agency has not specified what constitutes this level  of access. Because of the concerns about access to fee-free ATMs at  schools with college cards, Education staff have acknowledged that  further specifying convenient access may be beneficial. As part of its  recently announced process for developing regulations on a range of  federal student aid topics, including college cards, Education could  consider more specific direction on what constitutes convenient access— possibly including objective measures—which could resolve ambiguity  and help ensure that students at all schools with college cards would be  able to readily access student aid funds at no cost.
Although millions of students attend institutions that offer college cards,  comprehensive information is unavailable on the prevalence of  agreements between schools and card providers, the terms of those  agreements, and the experience of students in using college cards. As a  result, it is difficult for policymakers and regulators to fully understand and  effectively monitor the growing college card market. With the Credit  CARD Act, Congress required greater transparency for college affinity  credit cards, but not for college debit and prepaid cards, which were less  prevalent at the time. Requiring disclosure of college debit and prepaid  card agreements and related information, as well as making that  information easily available, would provide greater transparency about the  financial relationships between schools and card providers, and could  help students, policymakers, and regulators identify potential concerns  about these arrangements.
section_title: Matter for Congressional Consideration
paragraphs: To help ensure a comprehensive understanding of the agreements  between colleges and debit and prepaid card providers, Congress should  consider requiring that providers file these agreements with CFPB for  public review, and provide other relevant information, such as payments  between schools and the providers and fees charged to students, and  that Education provide reasonably prominent notice of the availability of  such information.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that students can make an objective choice about whether  to use a college card selected by their schools and have free and  convenient access to federal student aid funds, the Secretary of  Education should take the following actions:  In consultation with CFPB, develop requirements that schools and  college card providers present students with objective and neutral  information on their options for receiving federal student aid  payments.
Provide a specific definition for what constitutes convenient access to  ATMs or branch offices of debit and prepaid card providers where  students will not incur costs in making cash withdrawals of federal  student aid.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Education, the  Bureau of Consumer Financial Protection, and the Federal Deposit  Insurance Corporation. Education and CFPB provided written comments,  which are reproduced in appendixes V and VI. In its written comments,  Education concurred with our recommendations to the agency. Education  reiterated that, as part of its upcoming process to develop proposed  regulations for federal student aid programs, it is convening a committee  that will discuss, among other things, the meaning of “convenient access”  and potential requirements for schools and card providers to present  students with information on federal student aid payment options. In its  written comments, CFPB concurred with our Matter for Congressional  Consideration, noting that the failure to disclose the nature of college card  agreements raises potential consumer protection risks. CFPB also said  that it will continue to monitor the college card market closely and take  action as appropriate to ensure the law is being followed. Education,  CFPB, and FDIC provided technical comments that were incorporated, as  appropriate. We also provided selected relevant portions of the draft to  other federal agencies mentioned in the report, as well as Higher One,  and incorporated their technical comments as appropriate.
We are sending copies of this report to other interested congressional  committees, the Secretary of Education, the Director of the Bureau of  Consumer Financial Protection, the Chairman of the Federal Deposit  Insurance Corporation, and other interested parties. In addition, the report  is available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov, or  Melissa Emrey-Arras at (617) 788-0534 or emreyarrasm@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  key contributions to this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) functions of college cards and the characteristics  of schools and card providers offering the cards, and (2) benefits and  concerns regarding these cards. We focused on debit and prepaid cards  provided to students through agreements between schools and banks or  other financial firms. Our review did not include other card arrangements,  such as “closed loop” systems, in which cards connected to predeposited  funds typically can be used for payments on-campus, or on-campus and  at a limited number of near-campus merchants.
subsections: section_title: Federal Agencies, Laws, and Regulations
paragraphs: We reviewed relevant federal laws and regulations, as well as  documentation and guidance from federal agencies including the  Department of Education (Education), the Bureau of Consumer Financial  Protection (CFPB), the Federal Deposit Insurance Corporation (FDIC),  and the Board of Governors of the Federal Reserve System (Federal  Reserve). We interviewed staff from these agencies on topics that  included their monitoring of college card activity and recent regulatory  actions and initiatives. We reviewed public comments related to college  cards that Education received during recent hearings held as part of a  rulemaking process, and that CFPB received through a public Request for  Information. We also reviewed debit card complaints submitted to  Education and information on an FDIC enforcement action involving a  college card provider. We attended, and reviewed material provided at, a  CFPB forum on financial products marketed to college students. In  addition, we reviewed documentation from, and interviewed staff of, other  federal programs that distribute benefits electronically on cardsthe  Departments of Labor, Agriculture, Health and Human Services, and the  Treasury.
section_title: Data Analysis
paragraphs: To characterize the extent to which colleges and universities have  entered into college card agreements, and to examine the financial  services available through these cards, we developed a list of schools  with agreements. We created this list by reviewing available data from  sources including industry reports, interviews with college card providers,  and information obtained from school and provider websites. Our  creation and analysis of this information took place over several months  leading up to and including July 2013. Although we conducted an  extensive search, we may not have identified all schools with  agreements.
Using data from Education’s Integrated Postsecondary Education Data  System (IPEDS), we analyzed the institutional and student characteristics  of schools we identified as having college card agreements, and  compared these characteristics with those for schools and students  overall. IPEDS is a system of interrelated surveys conducted annually to  gather information from each college, university, and technical or  vocational institution that participates in federal student aid programs.  We used IPEDS data for the 2011-2012 school year, the most recent  available, to report on the following school characteristics: school sector,  location, enrollment, level of institution (such as 2- or 4-year), and  percentage of students receiving Pell Grants. We also used the IPEDS  data to report on the following student characteristics: age, race, and  average amounts of financial aid received.
To link the list of schools we identified as having card agreements to  corresponding school and student characteristic data in IPEDS, we first  used an automated process to match school names with IPEDS  institution names. Most names matched successfully, but for the relatively  few cases that did not, we made the match manually. Four schools from  our college card agreement list did not match with IPEDS school names  through either the automated or manual process. We excluded these  schools from our analysis of student characteristics.
Schools may have more than one unit or location. If IPEDS listed each of  a college’s locations or campuses separately, we counted each as a  separate school. However, if we identified only a specific campus within a  particular college system as having a card agreement, and not other  campuses in the system, we included only the specific campus.  Additionally, for schools offering online instruction, if IPEDS identified  them separately, we also counted them separately in our analysis.
We assessed the reliability of the IPEDS data by reviewing  documentation about the systems used to produce the data and  considering our previous use of the data. Based on our assessment, we  concluded that IPEDS data were sufficiently reliable for our reporting  purposes.
section_title: Selection of Schools for Extended Review
paragraphs: To complement our data analysis, we selected nine schools with college  card agreements for extended interviews and data collection. We  selected this nongeneralizable sample of schools to include a mix of card  types (debit and prepaid cards) and functions (such as use as  identification card or for student payments). We selected schools with  larger enrollments and higher proportions of students receiving federal  student loans in order to focus on schools distributing larger amounts of  federal student aid. We also included a mix of program lengths (for  example, 4-year and 2-year), school sectors (public, nonprofit, and for- profit), card providers, and geographic locations. We interviewed officials  at each of the selected schools and reviewed key documents including,  where available, contracts with college card providers, card terms and  conditions, and online and paper materials provided to students. We also  interviewed student leaders at five of these schools where we could  arrange meetings with students. (Table 3 summarizes the characteristics  of the institutions we selected and the types of cards and card services  they offer.) Our interviews covered topics including college card features,  how and why schools decided to enter into card agreements, contract  terms, card fees, and agreement benefits and concerns.
section_title: College Card Providers and Fees
paragraphs: We interviewed executives of eight banks and financial firms that were  the largest providers of college cards, together accounting for about 90  percent of the college card agreements we identified. The eight  companies were Higher One, Inc.; U.S. Bank; Sallie Mae, Inc.; PNC  Bank; Wells Fargo Bank; Citibank; Heartland Payment Systems, Inc.; and  Blackboard, Inc. We reviewed documents obtained from the providers,  including samples of contracts with schools and marketing materials. We  also reviewed securities filings, fee schedules, and other publicly  available information for the eight providers. To compare college card  fees with fees for similar banking services, we also compiled fee  information for basic and student checking accounts from five large banks  (which account for about 30 percent of the market for large commercial  banks) and for credit unions.monthly account maintenance, domestic out-of-network transactions at  automated teller machines (ATM), overdraft or insufficient funds,  inactivity, wire transfer, and debit transactions using personal  identification numbers (PIN). We selected the five large banks based on  consolidated assets as of June 30, 2013, as reported by the Federal  Reserve. (The banks we selected were not among the eight largest   We reviewed these providers’ fees for  college card providers we identified.) We obtained these banks’ fee  information in August and September 2013 from information available on  providers’ websites, and when such information was not sufficient, by  calling the provider’s customer service line. We designated a bank’s  checking accounts as basic if they provided standard services such as  check-writing, debit cards, and access to a bank branch. For credit union  fee information, we reviewed fees reported in the Credit Union National  Association’s 2013-2014 Fees Report.
section_title: Industry Groups, Consumer Associations, and Other Sources
paragraphs: We also obtained information from other relevant parties. This included  interviews with representatives from industry groups, including the  American Bankers Association, the Consumer Bankers Association, and  the Credit Union National Association; consumer advocacy organizations,  including the National Consumer Law Center and the U.S. Public Interest  Research Group; higher education associations, including the American  Student Government Association, National Association of Campus Card  Users, and National Association of College and University Business  Officers; two schools that had canceled their college card programs (in  addition to the nine schools selected for extended review); and four  financial services providers, including Visa and MasterCard, that  submitted public comments to CFPB regarding college cards (in addition  to the eight largest providers). We reviewed documents, reports, and  other information from these groups, as available.
We conducted this performance audit from November 2012 to February  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comparison of Student Payments by College Cards with Other Federal Benefits Distributed by Prepaid or Electronic Benefit Cards
paragraphs: We reviewed several federal programs that use prepaid or electronic  benefit cards to provide payments to beneficiaries (see table 4). Although  there are some similarities, these card programs generally differ from the  debit and prepaid cards that some U.S. colleges and universities use to  pay financial aid and other funds, which can include federal student aid  funds. Key points of comparison include:
Administrative structure. The other federal programs we reviewed  that use prepaid and electronic cards, some of which are run through  partnerships with state governments, generally distribute aid directly  to beneficiaries on prepaid and electronic benefit cards that are  provided through centrally managed agreements between the federal  or state governments and card providers. In contrast, federal student  aid is channeled through individual schools, and these schools  negotiate individual agreements with card providers.
Scale. Schools with college card programs have student populations  ranging from less than 1,000 to more than 100,000 students.  However, other federal programs can be much larger. For example,  the Department of Agriculture’s Supplemental Nutrition Assistance  Program (SNAP), formerly known as the Food Stamp Program, had  more than 46 million participants in 2012.
Choice of how to receive benefits. The Department of Education  (Education) prohibits schools from requiring that students use college  cards, and funds can be paid to students by paper check; electronic  transfer of funds, such as to a college card or direct deposit to an  existing account; or in cash. The Department of the Treasury provides  Social Security beneficiaries with a choice of receiving benefits by  direct deposit or on a prepaid card, though generally not by paper  check. For other federal programs, like the Department of Health and  Human Services’ Temporary Assistance for Needy Families program,  electronic benefit transfer (EBT) cards are the only way beneficiaries  can obtain their benefits in most states.
Card limitations. Education requires that the federal student aid  funds students receive on college cards be convertible to cash that  can be used for any purpose. The Department of Labor (Labor) has  similar requirements for funds provided through Unemployment  Insurance benefit cards. However, other federal programs may limit  where and for what items benefit cards can be used. For example,  SNAP limits EBT card purchases to eligible food items from approved  retailers.
Card fees. Similar to Education, other federal agencies we reviewed  place some limits on card user fees. Each of the programs described  below requires that card users have at least one opportunity to obtain  benefits without a fee. SNAP prohibits all card user fees, although  states may charge a fee for replacement cards.
Among the federal programs we reviewed, the one most similar to college  cards was Labor’s electronic distribution of Unemployment Insurance  benefits. In both cases, beneficiaries have no limits on purchases using  the card and generally have a choice in how they receive their benefits.  While neither Labor nor Education negotiates contracts with card  providers, both agencies impose requirements aimed at ensuring that  agreements have protections for beneficiaries. For example, both require  that beneficiaries have an opportunity to access their full benefit without  incurring a fee. Labor staff told us they have been developing new  guidance that will likely encourage states to negotiate card agreements  that minimize fees and offer beneficiaries a choice in how they receive  benefits. They said they may issue the guidance early in 2014.
section_title: Appendix III: Comparison of College Card Fees among Providers, Other Institutions, and Account Types
paragraphs: To examine the costs of college card accounts, we obtained publicly  available fee information for college card providers on selected items or  transactions as of August and September 2013. We also obtained  publicly available fee information for products similar to college  cardsbasic and student checking accountsoffered by other financial  institutions.
section_title: Appendix IV: Federal Provisions Addressing Debit and Prepaid Cards
paragraphs: A number of federal laws and regulations can apply to debit and prepaid  cards. With the exception of education-specific items, these provisions  apply generally to such cards, and do not specifically address college  debit and prepaid cards. In general, debit cards have greater consumer  protections than prepaid cards. Table 7 shows summaries of key  provisions.
section_title: Appendix V: Comments from the Department of Education
section_title: Appendix VI: Comments from the Bureau of Consumer Financial Protection
section_title: Appendix VII: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to the contacts named above, individuals making key  contributions to this report were Jason Bromberg and Michelle St. Pierre,  Assistant Directors; Amy Anderson; Rachel Beers; William Colvin; Daniel  Newman; and Christopher H. Schmitt. In addition, key support was  provided by Bethany M. Benitez; William Chatlos; John Mingus; Barbara  Roesmann; and Jena Sinkfield.