There are a few things I remember about my college ID: the goofy picture, class insignia and resident hall sticker on the card. One thing that crucial piece of plastic did not feature was a debit card function. Things have changed.
Now many student IDs double as debit or prepaid cards that come loaded with financial aid money. Colleges promote these hybrid cards as a convenient way for students to manage funds. But the terms of the accounts aren't always transparent, and some cards are riddled with fees. And what's in it for the schools? A few million dollars in payments from financial firms.
A group of 65 congressional Democrats, led by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.), introduced legislation last week to end this payoff system and prevent universities from steering students into payment products.
According to a report from the General Accountability Office, at least 852 schools, or 11 percent of colleges and universities in the United States, were peddling debit or prepaid cards to students as of July 2013. Most schools let students receive federal aid on the cards and outsourced the processing of that money to their financial partners on the card deal.
Researchers at the GAO found that the fees on campus cards -- overdraft or maintenance fees -- were comparable with the kinds of charges you'd encounter at a bank. But some card issuers impose a fee for card purchases using a PIN number rather than a signature; banks don't charge for that. GAO researchers couldn't pin down the total fees students are charged because some companies refused to give up that data.
Even if campus card fees are the same as bank fees, the idea of companies seizing money earmarked for tuition to recoup such charges doesn't sit well with consumer advocates or lawmakers.
“Students work hard to get themselves through college, and federal student aid is intended to help them do just that. Their financial aid should go towards the cost of college, not to banks through unjust and often hidden fees,” Harkin said.
Schools often act as middlemen for their financial partners, pushing students into products, rather than presenting unbiased information about their options, the GAO said.
Contracts on these partnerships are not public, and they're hard to obtain. But in 2012, U.S. Public Interest Research Group Education Fund got hold of an agreement between Ohio State University and Huntington Bank, which gave the school $25 million in payments over 15 years. The deal also included another $100 million in lending and investment.
Of the big banks, Wells Fargo, PNC Bank, U.S. Bank and Citibank each hold less than a 10 percent share in the campus card market. The industry is dominated by Higher One, a financial firm that, according to the GAO, holds 57 percent of the market.
Higher One got in trouble with the Federal Deposit Insurance Corp. in 2012 for charging students multiple overdraft fees on a single purchase and eating into financial aid to collect fees. The firm had to pay about 60,000 students some $11 million in restitution.
In February, the Department of Education took up the campus card issue as part of a broader review of student aid programs conducted by a 15-member panel. The group of consumer advocates and educators couldn't reach an agreement, leaving any changes in the hands of the department.
It's unclear what steps the DOE will take, which is why lawmakers are stepping into the fray. It took a legislative effort --the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 -- to prevent credit card companies from steering students into risky products, and it may take a similar push this time around.