School-sponsored debit cards may not be a good deal
College students may be heading down a financial black hole if they sign up for a debit card sponsored by their school.
If they read the fine print, they'll discover that some of these cards carry fees that are far higher than what is offered at a bank or credit union.
“On the whole, these cards are not a great deal for students,” said Kaitlyn Vitez, a higher education campaign director for the U.S. Public Interest Research Group, a consumer advocacy organization.
Typically, school-sponsored debit cards are used to disburse a student's financial aid refund, assuming they have a balance after bills for tuition, room and board, and fees are paid.
The problem, according to consumer watchdogs, comes when financial institutions pay schools for permission to market the debit cards directly to students. Fees often spike, particularly for overdrafts and money transfers from other accounts.
According to a 2019 PIRG report, students at schools partnering with financial firms pay an average of 2.3 times more in fees than students at schools without these agreements.
What's in it for the school? A paycheck for every student steered into these accounts. And with the pandemic, every dollar of revenue a school can generate goes a long way.
But this arrangement “could lead to perverse incentives for a school to turn a blind eye to higher fees,” Vitez said.
Participating financial institutions certainly generate some fee income. But more importantly, they are trying to bond with potential future customers.
The U.S. Department of Education is aware of the problem. In late February, the department launched a test program at four schools to make it easier for students to receive their financial aid refunds. The pilot program, called myFSApay, is being tested at Purdue University, the University of Georgia, the University of California-Riverside and Jackson
State University. A fifth school, National University in San Diego, was added last month.
Under the test program, students can opt to receive up to $8,000 in funds “on a prepaid card with a linked online account accessible through the myStudentAid mobile app” at no cost, according to a press release from the Department of Education. These funds can include financial aid refunds as well as direct deposits and paper checks from an employer or a parent. The MyFSA account “either reimburses or does not charge fees for the most common types of transactions in stores and at ATMs,” the department said.
Students can use the card to cover other expenses outside of tuition, room and board. This includes books, food, transportation and other supplies.
The DOE declined to comment on whether the pilot program has been successful or will be expanded.
The pilot program aside, it's always best for students to compare the branded college debit card with plastic offered by their bank, credit union or online bank. And study the fine print, especially for ATM and overdraft fees.
Questions, comments, column ideas? Reach Steve Rosen at sbrosen1030@gmail.com.