Bank Deal Dumps More Excessive Fees on Debt-Ridden Students

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Common Dreams

Bank Deal Dumps More Excessive Fees on Debt-Ridden Students

'Campus debit cards are wolves in sheep’s clothing'

by
Common Dreams staff

In a growing trend among college campuses, banks are now introducing more ways to siphon millions of dollars in 'fees' from the already debt-ridden student population.

A new report released today by U.S. Public Interest Research Group Education Fund (US PIRG), The Campus Debit Card Trap, finds that banks and financial firms in partnership with universities are offering enticing student 'debit' card schemes, which in turn wrangle excessive and hidden costs from students' accounts.

Students can now streamline a bank account with student aid disbursement, their student ID, ATM and library card, and other services; however, the new 'convenience' comes at a hefty cost. The campus focused banks are charging tricky, exorbitant and excessive amounts of fees from the students once they are engaged in the scheme, the report examines.

The result: students become reliant on private banks to access their student aid funding, while banks increase the amounts of deceptive and excessive fees charged.

"They sold it as a faster, cheaper way for the college to get students their money," said Parker-Milligan, 23, student body president at Lane Community College in Eugene, Ore. "It may be cheaper for the college, but it's not cheaper for the students."

"Colleges and banks rake in millions from the fees, often through secretive deals and sometimes in apparent violation of federal law," writes the Associated Press.

"A well-structured debit card program can provide benefits to students, but many current programs provide little to no choice, while high fees on grant and loan money leave students in deeper debt," US PIRG states.

Over 900 campuses in the US take part in these banking partnerships. Higher One, alone, has partnerships with 520 colleges that enroll 4.3 million students. Overall more than 9 million students are affected by the practice, increasing educational debt, which has already reached over 1 trillion dollars in the US alone.

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US PIRG: Banks Skim Millions in Fees From Student Aid Using Debit-Card-Linked Student IDs

“Campus debit cards are wolves in sheep’s clothing,” observed Rich Williams, U.S. PIRG Higher Education Advocate and report co-author. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

Over 9 million students are at risk for increased educational debt, due to bank-affiliated campus debit cards that come with high fees, insufficient consumer protections, and few options. Financial institutions now have affinity partnerships with almost 900 campuses nationwide, grafting bank products onto student IDs and other campus cards to become the primary recipient of billions in federal financial aid to distribute to students.

“Campus debit cards are wolves in sheep’s clothing,” observed Rich Williams, U.S. PIRG Higher Education Advocate and report co-author. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

The Campus Debit Card Trap, a new report released by the U.S. Public Interest Research Group Education Fund, finds that banks and financial firms now control or influence federal financial aid disbursement to over 9 million students by linking checking accounts and prepaid debit cards to student IDs. For decades, students would receive their aid by check, without being charged any fees to access their student aid. Now, students end up paying big fees on their student aid, including per-swipe fees of $0.50, inactivity fees of $10 or more after 6 months, overdraft fees of up to $38 and plenty more. Financial institutions aggressively market or default students into their bank accounts to maximize these fees.

A well-structured debit card program can provide benefits to students, but many current programs provide little to no choice, while high fees on grant and loan money leave students in deeper debt.

“Every penny of financial aid money should go to educational expenses, not an education in high bank fees,” said Williams.

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Associated Press: Deals with banks stack fees on college students

The fees add to the mountain of debt many students already take on to get a diploma. U.S. student debt tops $1 trillion, according to the Consumer Financial Protection Bureau.

Colleges and banks rake in millions from the fees, often through secretive deals and sometimes in apparent violation of federal law, according to the report, an early copy of which was obtained by The Associated Press.

More than two out of five U.S. higher-education students — more than 9 million people — attend schools that have deals with financial companies, says the report, written by the U.S. Public Interest Research Group Higher Education Fund.

The fees add to the mountain of debt many students already take on to get a diploma. U.S. student debt tops $1 trillion, according to the Consumer Financial Protection Bureau.

Student loans have surpassed credit cards as the biggest source of unsecured debt in America, according to the CFPB, which regulates cards and private student lenders.

Among the fees charged by Higher One, according to its website, is a $50 "lack of documentation fee" for students who fail to submit certain paperwork. The U.S. Department of Education called the charging of such fees "unallowable" in guidance to financial aid officers issued last month. [...]

Students can opt out of the programs and choose direct deposit or paper checks to receive their college aid, but relatively few do. The cards and accounts are marketed aggressively using college letterhead and websites carrying the endorsement of colleges. Higher One also warns students that it will take extra days if they choose direct deposit or a paper check.

In the end, students feel locked into accounts before they have a chance to shop for a better deal, Parker-Milligan said.

He said that's especially tough for poor students who rely on food stamps and other social services.

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