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 In a debit transaction, the amount of the transaction is withdrawn from the available balance in the cardholder’s account.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. 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. 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. 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. 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.