The Campus Debit Card Trap & Your Financial Aid

College is a time of many firsts for a student: First time living away from home, first time doing your own household chores and, for many, first time getting your own debit card. With the wide variety of options available from different banks, it can be hard for a young adult to make sense of which card they should choose, in addition to understanding the various fees and regulations that go along with it.

Many schools offer what seems like an easy solution: Prepaid or debit cards that a student’s financial aid can be put on. Some schools even offer official student photo ID cards that can double as one of these cards. Many students choose these cards because they’re easy, and they seem to be endorsed by the school, without realizing the hefty fees associated with them.

These cards seem to be everywhere. In fact, the U.S. Public Interest Research Group Education Fund has found almost 900 card partnerships between colleges and banks or financial companies. Rich Williams, co-author of the report and higher-education advocate for U.S. PIRG, explains that although these partnerships help schools bring in the needed funds and can reduce the cost of distributing financial aid to students by outsourcing that service, the arrangements aren’t always in the best interest of students. Instead of being able to access their money freely, their financial aid is eaten up in fees.

The U.S PIRG Education Fund’s report found the following key findings:

• 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.
• 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 60 cents per inquiry. This does not include charges potentially assessed by the ATM owner.
• Access to student financial aid funds placed on debit cards can be subject to limited availability of “convenient” fee-free ATMs for student loan withdrawals despite U.S. of Education rules. Students end up paying fees to access their aid.
• Although contracts are hard to obtain, revenues to schools can be substantial. A new contract between Ohio State University and Huntington Bank includes $25 million in payments to the school over 15 years. It also includes an additional $100 million in lending and investment to neighborhoods surrounding campus.

Because they’re so new to banking, a lot of students don’t know that they can easily find checking accounts that are virtually free to use if they look at those available to the general public. Heavy marketing tactics, the ease of directly depositing their financial aid and the assumed endorsement by their school convince many not to look any further than the prepaid or debit cards offered on campus.

Is your student going off to school soon? Make sure they aren’t paying exorbitant fees to access their money, and talk to them about why they should be wary of debit cards that allow them to load grant or loan money. Please contact us if you want to know more!

Photo Credit: Images_of_Money