Just how do we get banks and other financial firms to stop using pretty plastic like crack? Why are some student loans connected to a debit card with costly fees?
We’re hearing about the campus debit card trap from the U.S. Public Interest Research Group, or PIRG.
Rich Williams, higher education advocate for U.S. PIRG, said the debit cards are the new fee generator, now that there are more restrictions on credit card promotions on campus.The lure of the prepaid or debit cards for students is that typically you could get access to financial aid or student loan cash faster than, say, if you’re mailed a check.
This fall, Wayne State University plans to launch a card involving a partnership with Higher One, a financial firm with card agreements at 520 campuses nationwide.Jim Barbret, controller and associate vice president for fiscal operations at Wayne State, said Wayne State’s students still can have a check sent to them to receive what money is left from student loans and financial aid after tuition. Or the money can be directly deposited to the bank or credit union. Or the money would be deposited via a Higher One debit card.
“One of our driving principles is we give them the options, they make the call,” Barbret said.
This is money that typically is used for books, housing and other costs associated with college.Barbret noted that the new card can make disbursing student loan money more efficient if checks do not have to be directly mailed, and perhaps lost or returned because of an incorrect address.
At Wayne State, four Higher One-related ATMs are on campus. But other Higher One ATMs are on other campuses in southeastern Michigan. Students could withdraw money from the card at those ATMs with no charge.
Otherwise, the ATM fee is $2.50, plus any other fees associated with an ATM at another financial institution.
While the idea sounds OK, the true test could be how well students access borrowed money without paying extra at an ATM.
Williams also was critical about some students getting hit what he called “pay-to-pay fees” — or 50-cent swipe fees to use a PIN number with these debit cards.
If you use it like a credit card, there’s no fee. If you use the PIN number, there’s a 50-cent fee. “That’s just confusing for students,” Williams said.
Higher One is a dominant player. But students have complained online that there can be a rush on campus card ATMs and machines can run out of cash. Then students use ATMs from other financial institutions that can add up to $5 in fees to access financial aid.
Mark Kantrowitz, publisher of FinAid.org, said he believes that criticism of the process is warranted. At the very least, Kantrowitz recommended, the debit cards relating to student loans should involve an opt-in process — not an opt-out — and there should be better disclosure of the fees and how much students tend to pay in such fees based on the previous year’s experience.
Students who have the Higher One cards need to understand the “abandoned account fee,” too. That fee can be triggered if there is no activity for six months — no Web log-ins, no transactions and no deposits. The fee is $10 a month until the account hits zero.
Higher One said the fee would never overdraft an account and is designed to sweep an abandoned account to a zero balance so that it can be closed.
Higher One’s research indicates that 1% to 2% of its account holders have paid this fee and often there’s less than a dollar in the account. U.S. PIRG was also critical of relationships that colleges have with given banks — which may encourage students to simply take the easy route and not shop around for the best deal on checking accounts.
The University of Michigan has a relationship with TCF Bank, where the bank sponsors U-M’s ID card, called the Mcard. The card can hold student loan or financial aid money, if students deposit their student loan or financial aid money into a TCF checking account that is linked to their Mcard.
The banking functions of the card are optional, according to U-M’s Mcard program manager Judy Hufziger.
The university does receive revenue on each student’s or faculty member’s or staff member’s TCF checking account that is linked to the Mcard. The revenue is based on the number of accounts; U-M receives $25 for each linked account.
When linked to checking, the Mcard can be used at ATMs as a debit card and at select retailers that have PIN equipment. TCF provides a separate Visa debit card to all Mcard holders who have linked to a TCF account.
An overdraft fee of $37 can apply when there are non-sufficient funds in the checking account. There’s a $20 fee to replace a lost card. The Mcard is not a prepaid card.
Yet when a checking account is offered via an ID card, some consumer groups say some students may think it’s the only option, even if it is not.
“We think students should have an unbiased choice on where to bank,” Williams said.
The U.S. Department of Education has held negotiated rule-making sessions for revisiting the regulations for the debit cards. Some members of Congress want to address the fees.
Let’s figure out a way where financial aid money and student loans won’t be wasted on pointless fees.