The recent wave of agreements between colleges and non-bank providers of prepaid card services to market these products to students has sparked a call for more stringent laws and regulations. According to a recent report by the Government Accountability Office (GAO), as the number of agreements has grown, questions have arisen over fees and other issues.
“These college cards provide students with debit or checking account services, but also can serve as student identification cards or be used to deliver student aid,” the GAO says. One of the primary concerns identified is fees that students can incur when accessing federal student aid–which in 2012 was near $142 billion in grants and loans to 15 million students.
Three issues targeted
The GAO report notes that benefits of the cards can include convenience for students and cost savings and efficiencies for schools. But three areas should be addressed.
The first is fees. GAO found that while some college card fees were higher than those of credit unions, most fees were comparable with those for similar products provided by banks. However, two large providers charged a fee for card purchases using a PIN rather than a signature, a practice not usually employed by mainstream debit cards.
Fee-free ATM access
ATM access is another concern. Department of Education regulations for college cards require schools ensure convenient access to fee-free ATMs or bank branches for students receiving federal student aid payments, but have no specifics about what this level of access entails which could cause students to run up unnecessary fees when making cash withdrawals of federal aid.
The third concern is neutrality in marketing cards as a payment option for students because some schools receive payments from card providers based on the number of accounts or transactions. GAO found some schools or card providers seemed to encourage students to choose the college card instead of presenting all options so they could make the most informed choice.
Ensuring an informed choice
The GAO report recommends Congress consider requiring providers of debit and prepaid card services for colleges to file their agreements for public review and provide other relevant information.
Additionally, the Department of Education should spell out what constitutes convenient access to ATMs or bank branch offices for students receiving federal student aid funds, and create requirements for schools and card providers to ensure students receive neutral information about their options for receiving federal student aid funds.