As we reported last week, the US Public Interest Group Education Fund recently published a report that found banks are invading college campuses at a great rate – nearly 900 campuses have partnerships with banks – in spite of restrictions from the Credit CARD Act.
In the wake of the report, finance experts are questioning not only whether college students should be handed ID cards that double as debit cards and are branded with bank logos, but whether they should be encouraged to use debit cards at all.
What is the best way for college students to access their money and learn how to be responsible financial consumers? Prepaid cards, debit cards, credit cards – options abound, but how can students – and their parents – know which is the best choice?
Cards and Fees – Sheep and Wolves?
One of the co-authors of the U.S. PIRG study, Rich Williams, calls campus debit cards “wolves in sheep`s clothing,” saying that although students think using the cards is free, their financial aid is being drained away by bank fees.
The study highlights fees like a $28-per-day overdraft fee charged by one bank in particular. The fee can be charged for up to 14 days, meaning that a student who accidentally overdraws their account and doesn`t realize it for a couple of weeks can get stuck with a charge of $392. Another college charges $4.95 every time a student wants to reload their prepaid card.
According to the U.S. PIRG report, “Supporters of the fee structures on these campus card products insist fees are a natural consequence of electronic banking. However, students can easily find checking accounts available to the general public in the marketplace that are virtually free to use.”
Education Fix For Fees
Michael Germanovsky, Editor-in-chief at Credit-Land.com and founder of the Student Credit Card Education Initiative, which educates young people about responsible credit card use, says that the problem isn`t the fees, but the lack of good financial education for students.
“I believe that the trouble with credit cards and debit cards on campus lies not in fees, but in the lack of education for college students,” says Germanovsky. He says prepaid cards, whose fees have lately come under scrutiny from the Consumer Financial Protection Bureau (CFPB), are an especially good option for students. According to Germanovsky, “Prepaid debit cards are the best thing that ever happened to college students, because it is the easiest way to get their allowance and learn to use plastic.”
Certain credit cards designed for college students can be a smart choice as well. “Some credit cards carry benefits for college students that cannot be overlooked – for example, the Citi® Dividend Platinum Select® Card for College Students gives five percent cash back on purchases at grocery stores, drugstores, gas stations, and convenience stores for the first six months of card ownership. While Michelle is dully right to point out “wolfs in sheep clothing”, we should not scare away parents and students from using debit cards.”
Government Intervention on the Horizon?
Some think that the CFPB may be targeting student credit cards and debit cards next – right after they finish their inquiry into fees on prepaid cards. Michelle Singletary, finance columnist at The Washington Post, says in her latest column that she sees “another investigation for the Consumer Financial Protection Bureau.”
In the meantime, families should educate their children about responsible use of credit, debt and prepaid cards. Fees can be avoided, but sometimes they are worthwhile in exchange for value received – such as with cash back bonus cards. The key is educating yourself (and your children) enough to know the difference.