College-affiliated debit cards offer convenience and other benefits to students and colleges, but too little is known about the fees users are charged and the revenue received by colleges, according to a report released on Thursday by the Government Accountability Office.
At least 852 American colleges have agreements with banks or other financial companies to provide debit- or prepaid-card services to their students, and most allow students to receive federal student aid and other payments on their cards, the report says.
While that number represents just 11 percent of American colleges, the report says, the institutions with debit-card arrangements tend to be disproportionately large, enrolling 40 percent of all students.
The dominant provider of such cards is Higher One, with a 57-percent market share. In 2012, Higher One and a former bank partner settled with the Federal Deposit Insurance Corporation, which alleged unfair and deceptive practices related to the company’s fees. The settlement required Higher One to change its practices for charging fees and pay $11-million in restitution to 60,000 students.
These days the fees associated with debit and prepaid cards offered by colleges are generally in line with similar products offered by banks–with one significant exception. At least two college cards charge students a fee for each card purchase made with a PIN rather than a signature, according to the report.
The total fees paid by students for their college-affiliated cards are unknown, and some providers declined to share that information with the GAO.
‘Fully Transparent’
While revenue-sharing agreements between financial institutions and colleges appear to be declining, some student and consumer groups remain concerned that the arrangements present conflicts of interest.
In its review, the GAO found several cases in which colleges or card providers encouraged students to sign up for college-affiliated cards to receive their student-aid refunds, rather than offered neutral information about the students’ options. Students can opt to have such refunds issued by check or direct deposit.
An official at Higher One, which stopped offering revenue-sharing deals in 2007, welcomed the GAO’s scrutiny of such arrangements.
“As the GAO noted in its report, Higher One has already made considerable changes to ensure our student-account offerings are fair, fully transparent, and result in students receiving their financial-aid reimbursements quickly and in the way they want it,” said Casey McGuane, the company’s chief operating officer.
The report, which was requested by Sen. Tom Harkin, Democrat of Iowa, comes less than a week before the Education Department is set to begin a rule-making process intended to address concerns about campus debit cards, and five months after the Consumer Financial Protection Bureau held a forum seeking comment on the arrangements.
The bureau’s director recently called on financial institutions to voluntarily make public the terms of their contracts with colleges.
‘Not Fair’
Christine Lindstrom, a negotiator in next week’s rule-making session, said she would “press for the strongest possible measures to block the aggressive marketing tactics that push student-financial-aid recipients into these accounts and to ban the junk fees that are hard to avoid.”
“We’ve heard from too many students, at too many campuses, for too long that these debit cards are not fair,” said Ms. Lindstrom, director of the higher-education program for the U.S. Public Interest Research Group.
The GAO report recommends that Congress consider requiring financial companies to make public their agreements with colleges. It also suggests that the Education Department specify what constitutes “convenient access” to ATMs or bank-branch offices for students who use the cards to receive refunds, and set requirements for colleges and card providers to offer neutral information to students.
In a statement issued on Thursday, Senator Harkin, chairman of the Senate education committee, said he was concerned by the lack of transparency about the arrangements and the benefits they provide to colleges.
“These agreements look far too similar to the student-loan and credit-card abuses we cracked down on in the past,” he said. “When students receive federal student aid, it is critical that they receive what they are promised. It’s particularly egregious that these fees are also eating into student-loan funds that students are required to pay back with interest.”
