GAO Recommends Changes For Student Debit Cards

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Small fees add up for college students using college-issued debit and prepaid cards, which are often used to draw financial aid, and congressional investigators on Thursday urged greater oversight of their use.

These types of cards are becoming more common on campuses and double sometimes as a student ID card. They are popular with both college administrators and many students because of the convenience, but using a third-party financial provider can also save colleges and universities money as they offer services such as distributing financial aid or making tuition refunds.

The Government Accountability Office said the fees generally are similar to those other debit cards charge. But, it said, some students end up with out-of-network ATM fees, and some cards have terms that charge a fee if students enter a pin number to receive money instead of signing to get cash back.

It says it’s unclear how much money is garnered from these fees, but Federal Deposit Insurance Corporation staff members told GAO that it has received complaints from students of fees ranging from hundreds of dollars to more than $1,000, the report said.

The GAO says contract terms between colleges and financial institutions should be more transparent. Students are supposed to have convenient access to aid money, and GAO asked the Education Department to define what that means in terms of access to ATMs. It also called on the department to develop requirements to ensure students know all their banking options.

A response by the department included in the report said Education Department officials agree with the recommendations. The department has convened a rule-making session next week to address the issue.

The National Association of College and University Business Officers has issued “best practices” guidance to colleges and universities that encourages them to keep students’ interests first, to negotiate low- or no-fee financial services and to make agreements transparent.

“Just as colleges and universities strive to provide high-quality academic experiences for their students, they must ensure that school-sanctioned services are also good consumer values,” the guidelines say.

The Consumer Financial Protection Bureau notes in the report that in one survey of school officials, 69 percent of schools said they already make available their arrangement with financial companies that spell out the terms of the partnership between the school and the company servicing the debit or prepaid card. But the bureau said students can have difficulty finding that information.

In 2009, Congress passed a law that requires credit card companies to disclose relationships with colleges and universities. That law doesn’t include college-issued debit or prepaid cards, according to Consumer Financial Protection Bureau.

Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., said in a joint statement that it was troubling that students could see a dent in the amount of student aid available to them because of debit and prepaid card fees.

“Congress curbed aggressive and lucrative marketing on these products, but financial institutions are now back on campus,” said Miller, the ranking member of the House committee that oversees education. “They are pushing debit cards arrangements that are once again great for banks and great for colleges but can be terrible for students. “

But, in a statement, Richard Hunt, the president of the Consumer Bankers Association, said the report shows that, “arrangements with banks often benefit students and schools by offering reduced costs, convenience of use and valuable financial education.” He said association member banks have relationships with colleges and universities that “offer students products with transparent terms and the freedom to choose the products and services they use.”

At least 850 schools, or 11 percent of colleges and universities, had agreements to provide the debit or prepaid cards as of last July, according to the GAO. It said these schools tend to be large and represent about 40 percent of all secondary students.

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