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College debit and prepaid cards need tougher standards

Department of Education rules would help safeguard students from excessive fees

Published: May 22, 2015 01:00 PM

It’s high school graduation season, and millions of freshly minted grads will start college in a few months or so. Most of these students will receive federal aid to help pay for the hefty cost of school. A growing number of colleges are offering their students debit and prepaid cards for receiving their federal aid under marketing agreements with banks and other companies.

But some students who use these accounts are getting hit with unreasonably high fees, and they're losing their federal student aid funds as a result. Too often, students are being steered to these cards without clear information about their account options.

At Consumers Union, the policy and advocacy arm of Consumer Reports, we believe these campus card agreements need greater scrutiny to make sure students are getting a fair deal. Last year, we issued a report on campus banking products that examined fees, poor disclosures, and other problems with these school-bank partnerships.

Now the U.S. Department of Education has proposed rules to set tougher standards for these marketing deals and safeguard students from excessive fees.

The Department of Education estimates that these rules would help protect as many as 9 million college students receiving $25 billion in student aid.

"It is critically important to ensure that students can freely choose how to receive their federal student aid refunds," said U.S. Under Secretary of Education Ted Mitchell. "Students need objective, neutral information about their account options. For example, students should be able to choose to receive deposits to their own checking accounts and not be forced to utilize debit cards with obscure and unreasonable fees."

The Education Department said the rules would prohibit institutions from requiring students or parents to open a certain account into which their credit balances are deposited. Institutions would have to ensure that students have reasonable access to surcharge-free ATMs. Institutions would be required to provide a list of account options that a student may choose from to receive credit balance funds, where each option is presented in a neutral manner and the student’s preexisting bank account is listed as the first, most prominent, and default option. Schools would also have to make their campus banking contracts public.

We believe these rules will help provide greater accountability that has been lacking for too long around these school-bank partnerships. We applaud this strong first step by the Education Department and urge the agency to protect all students from being steered into accounts with harmful fees that eat into their financial aid dollars.

You can submit comments on the proposed regulations until July 2 by selecting the Department of Education’s "Program Integrity and Improvement" package at

This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

Read other installments of our Policy & Action feature.

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