Campus debit cards can carry downsides

Michelle Singletary
Columnist June 2, 2012

I like debit cards. They are better in many ways than credit cards, but you can still quickly get into trouble if you’re not careful. Now comes word that college students get debit cards through their school’s partnerships with financial companies and are paying numerous fees as a result. Sometimes these fees eat into their financial aid.

Consumer advocates have long criticized the amount of fees associated with debit cards. Most recently, a report by the U.S. Public Interest Research Group Education Fund found that hundreds of colleges have partnerships with financial companies to put a student’s financial aid on debit or prepaid cards that carry hefty fees. Under some of these deals, official student photo ID cards can double as debit cards.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

U.S. PIRG said it has found almost 900 card partnerships between colleges and banks or other financial companies. Many of the schools have experienced major cutbacks in state funding, so the deals bring in needed funds. It can also help the school reduce the cost of distributing financial aid to students by outsourcing that service. But the arrangements aren’t always in the best interest of students, said Rich Williams, co-author of the report and higher-education advocate for U.S. PIRG.

“Campus debit cards are wolves in sheep’s clothing,” Williams said. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

Let’s look at some of the fees highlighted by the report:

●One bank charges a $28 overdraft fee for each day an account is overdrawn, for up to 14 days.

●Students using prepaid debit cards can be charged for reloading or depositing money on the cards at ATMs. At one school, the reload fee is $4.95.

●One company charges students 50 cents if they swipe a card with a MasterCard logo, choose the debit option and enter their personal identification number. They don’t get charged the fee if they use the credit option and sign the receipt. This type of fee has been particularly controversial. Students at Portland State University and Southern Oregon University protested the fee and had it removed.

●Under one deal, a student debit cardholder can be charged a $10 fee if another person tries to load money onto the student’s card electronically but the transaction is canceled because the other person’s bank account has insufficient funds.

●Students can be assessed a fee when they check their balance at an ATM. One institution charges 60cents per inquiry. This does not include charges potentially assessed by the ATM owner.

“Supporters of the fee structures on these campus card products insist fees are a natural consequence of electronic banking. However, students can easily find checking accounts available to the general public in the marketplace that are virtually free to use,” the report says.

Students can often opt to have their financial aid directly deposited into an account not affiliated with a financial institution working with their college. They can get a paper check. But inertia and heavy marketing by the financial companies often result in students choosing the cards being pushed under the college-backed partnerships.

“Students are not necessarily making their financial choices freely,” the report says. “When the college has selected a student ID vendor that ‘incidentally’ offers additional banking services on the college-mascot-embellished card, the student’s choices are limited and the student is under the presumption that the college endorses the provider.”

These deals, many of which are not publicly disclosed, raise questions that demand answers. If students are getting precious grant aid or loans loaded on to their debit cards, they shouldn’t be nickel-and-dimed to death with fees.

U.S. PIRG recommends that students be presented with options to receive financial aid. They should also be able to easily opt out of the university-sponsored debit-card program through the campus itself, rather than having to go to a Web site or though other hurdles.

I see another investigation for the Consumer Financial Protection Bureau. Although debit cards help make getting money easier, we need to make sure students, many new to banking, aren’t paying more than they need to for access to their money.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

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