Touting themselves as “The bank that helps you pay down your student loans,” online bank SmarterBank (in partnership with The Bankcorp Bank) launched a debit card this week aimed at students trying to pay down their student loan debt.
With the national student loan debt balance estimated at $870 billion and dwarfing auto loans and credit card debt, many people are looking for ways to pay their debt down faster, and any company offering a shortcut to solvency is likely to attract attention from debt-weary students. About 37 million Americans carry student loan debt, and that figure just keeps rising.
Desperate for Debt Relief
Banking on this student loan bubble to bring them business, SmarterBank and others, like the UPromise MasterCard from SallieMae, offer card holders the opportunity to earn rewards which they can then apply to their student loans.
The UPromise MasterCard also offers 1% cash back on all purchases and a too-good-to-be-true 10% on grocery purchases, but after wading through the fine print, it is indeed too good to be true. There are many limitations and conditions on the 10% back – you have to use your credit card (of course) but also a store loyalty card, both linked to the same account, and in some cases you have to use special coupons to make approved purchases.
Are these cards really a good deal for students or graduates saddled with student loan debt?
Doing the Math
The SmarterBank Visa debit card offers 1% back on purchases, an amount that is industry-standard for rewards credit cards. A student who spends $2,000 a month using their SmarterBank debit card could get $20 back, an amount which SmarterBank says could help shave months off their repayment period. However, using a credit card that offers rewards greater than 1% would help shrink that debt even faster, if the rewards are applied to the loan. It`s easy to find a credit card that offers a higher return than 1%, and with responsible use, such as paying off the entire balance each month so as not to incur an interest fee, customers will get a much better deal.
Here`s a look at the fee chart for the SmarterBank Visa debit card:
- $4.95 per month inactivity fee – all that`s needed to avoid this is to make one transaction of any type per month, so not a big deal if you`re using your account
- $2.00 for using a foreign ATM
- $5.00 for a copy of your statement
- $25.00 an hour for “research fee” if you request an account review
All in all, the fees aren`t outrageous if you use your account carefully – keep it active, don`t use an out-of-network ATM, check your statement online and do your own “account research” when needed – but it`s the implication that getting 1% back will help you pay your debt down so much faster that sticks in my craw. Does spending money in order to pay off debt really make sense? Tempting young people with a debit card targeted right at them and telling them that the more they spend, the faster they pay off their loans is just downright irresponsible.
Education is the Answer
Credit-Land.com`s Student Credit Card Education Initiative was created to help young people use credit responsibly and learn about credit cards. Credit cards can indeed be a wonderful way to earn rewards and make the most of your money, but a debit card offering 1% back toward your student loans is far from the best offer out there.
Cards like the Discover More card (the offer has expired), the American Express Blue Cash Everyday Card, and the Chase Freedom Visa offer higher amounts of cash back and better terms than these cards that are marketed to people trying to pay down student loan debt. Consumers would do well to do their research and educate themselves and not fall for marketing pitches when they are searching for a credit or debit card.