College Kids Get Hooked On Debit Cards Connected To Student Loans Rather Than Credit Cards

Credit card reforms may have made it more difficult for banks to exploit college students, but it turns out there is more than one way to turn an unsuspecting post-adolescent into a debt monkey. The trick is to issue students debit cards that run up their student loans rather than over-regulated credit cards.

The Washington Post says these things are becoming as popular as blackouts and lifelong regrets on college campuses nationwide. The cards are plagued with high fees and have sparked student protests.

The Post spoke to a University of North Dakota student who led one such demonstration:

“That’s really just not the best thing to be doing with our financial aid. They’re siphoning it away little by little.”

If you’re a student or hang out around a college campus, tell us if you have any experience with these tricky cards.

Debit cards replacing credit cards on college campuses [The Washington Post]
(Thanks, Robert!)

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  1. qwickone says:

    wtf?? they can do this? I graduated in 2005 and I never heard about this.

    • mac-phisto says:

      well, it wasn’t too different before 2005. i know my school was notorious for having glorious parties right around the time that student loan refund checks were issued.

      & 3 weeks later, everyone was scrambling for a job to pay their rent.

  2. apd09 says:

    But do they still get that free t-shirt or frisbee for opening said debit card account? That makes it all worth while, a free t-shirt is always pretty sweet.

  3. Tim in Wyoming says:

    Interested to see if any federal backed student loans are being used for this.

    • dbeahn says:

      Yes. They pushed this on me, and the ONLY financial aid I get is Federal loans. One of my friends has both loans and Grants, and they pushed one on her, too.

      We both opted out.

  4. Gulliver says:

    I don’t see evil intent. It allows the student access loan money as needed, instead of waiting on checks to clear or going to a financial aid office. The college my bf goes to puts all financial aid on the card. He can purchase books, or anything else he wants with it. Not sure why there would ever be a 9 month inactivity fee. If you don’t need the loan do not take it anyway.
    There will be a day in the not too distant future when all payroll will be put on a debit card as well.

    • mac-phisto says:

      the devil’s in the details. these card programs typically carry fees both for usage (& for non-usage). furthermore, they don’t always carry the same protections that you would normally receive with a bank account.

      i don’t have a problem with disbursement onto debit cards for student loans, payroll, public assistance benefits or what-have-you. i do have a problem with these companies charging fees to access those funds, though. it borders on unjust enrichment.

      • Nigerian prince looking for business partner says:

        It actually sounds a lot like having an equity line on your house. Instead of being backed by your equity, it’s backed by a student loan.

    • libwitch says:

      There are some huge problems with this:
      *payroll is money you earn — as opposed to money that you have to payback.

      *You tend to have a *cap* on the amount of loans you can take out; so if they are setting it up in such a way that they just keep increasing the loan amount as you use the debit card (as opposed to saying “here is your loan refund on this handy debit card, go have fun!) , then you can tap all your loan money on incidental expenses long before you out of school

      *Even if they are only putting the refund on the card, you should still be making darn sure that refund goes either towards college related expenses are, even better, back to the loan. This makes it really easy to treat it like free money.

    • libwitch says:

      There are some huge problems with this:
      *payroll is money you earn — as opposed to money that you have to payback.

      *You tend to have a *cap* on the amount of loans you can take out; so if they are setting it up in such a way that they just keep increasing the loan amount as you use the debit card (as opposed to saying “here is your loan refund on this handy debit card, go have fun!) , then you can tap all your loan money on incidental expenses long before you out of school

      *Even if they are only putting the refund on the card, you should still be making darn sure that refund goes either towards college related expenses are, even better, back to the loan. This makes it really easy to treat it like free money.

    • dbeahn says:

      The “evil intent” is that the schools are getting paid by “Higher One” to encourage it’s students (many of whom are young and inexperienced) to use this card that is designed to charge fees for *every* transaction. Make a purchase, pay a fee, check your balance, pay a fee, withdraw cash, pay a fee.

    • dbeahn says:

      The “evil intent” is that the schools are getting paid by “Higher One” to encourage it’s students (many of whom are young and inexperienced) to use this card that is designed to charge fees for *every* transaction. Make a purchase, pay a fee, check your balance, pay a fee, withdraw cash, pay a fee.

  5. Liam Kinkaid says:

    I graduated in 2006 and there was an option to get student aid that was awarded in excess of fees and tuition onto a MasterCard debit card. Yes, they did have high fees. $.50 each time you used a PIN based debit, $2 surcharge for getting cash except at ATMs at the school, inactivity fees, etc. You could get your student aid distributed by check, but that took a week or so longer. So, whenever the money was put on the card, I went right to the ATM and withdrew it all, then took the cash to my bank to deposit.

    The debit cards also doubled as Student IDs, but I never had an issue showing it as an ID because I never kept money in that account, but I suppose having a debit card as your ID isn’t really the safest way to go. I wonder how much kickbacks the school was getting for that.

  6. dbeahn says:

    The school I go to pushes these cards REALLY hard. There’s marketing all over campus pushing about how you get access to your money faster (like, 3 whole days faster) and how it’s “easier” because you can just use the card.

    The card’s fees are TERRIBLE.

    So I opted out. I had to go to a special website and provide a bunch of bank info and verify it like 3 times.

    I suspect there are a lot of kids out there that don’t ever figure out the opt out process.

  7. dragonfire81 says:

    Capitalism wins again. No matter how many laws you pass, they’re going to find ways around them. It’s the American (corporate) Way.

  8. ARP says:

    I’m not sure I understand how it works:

    So do you request additional loan money and its gets put on a card. Or, is it more like a true credit card, where it actively increases your student loan debt?

    Meaning, do I have to request a certain amount of loan money and then wait a few days to be put on the card, or can I just keep charging and it will automatically increases my loan amount (to a limit).

    • sirwired says:

      When you get a student loan, the check (or electronic blip) is usually sent to the school’s Bursar’s office (prevents student loan fraud where the student decides to take the money and run.) You go there, and sign over the check to the school. They deduct your tuition and fees from the check amount. If there is anything left over, the normal process is that they in turn cut you a (smaller) check or directly deposit the money into your bank account, where you may use it however you wish. This adds the option of having the money put on a pre-paid debit card instead. And paying crazy fees to do something your bank will let you do for free with a regular debit card.

      • ARP says:

        Thanks. I think they’re stupid, but if students want to sign up for them, that’s their business. I disagree that they should be forced to accept these or have these as the default payment method for the residual.

        Students should be sufficiently warned about the fees, not just have them buried in a 10 page agreement. After that, its up to them. College is also about learning how to budget your money and live on your own.

  9. yagisencho says:

    Wow, I am so grateful these weren’t around during my college days. I would have been screwed.

  10. RobThy says:

    They have these at our school and it is REQUIRED to get one. You don’t have to use it, you have to submit your bank information to the company, and they can then DD your funds to your bank with no fees. But it adds more time to the process, and its a temptation for those stupid enough to use the cards.

    So for example the Fed gives my money to my school, they take their cut. The remaining amount is sent to the card company (1-2 business days). Than I have it set up to automatically DD into my bank account (3-4 business days). So I have to wait for my school to send to the company, just so they can send it to me. Its very annoying and I hate it!

  11. evnmorlo says:

    My school never let a cent of financial aid slip away from its hands.

    • Big Mama Pain says:

      Same here; I never got any money back because I borrowed exactly how much the tuition was and nothing more. On the one hand, if kids are going to be dumb with cards, better student loans with low interest as opposed to regular credit cards (which also get heavily hocked on college campuses)

  12. richcreamerybutter says:

    OMG, “Higher One.”

    “Sometimes people are looking for evil intent where there is none,” rasped Anne Gross, before she sprouted a set of goat horns and blood flowed up the walls.

    Basically Higher One is a replacement of regular direct deposit and the student’s regular debit card. They seem to be giving the standard non-answer in the form of “you simply don’t understand us” when alert students are questioning why colleges are just enabling a completely unnecessary step.

  13. Loias supports harsher punishments against corporations says:

    Jesus Christ!! I am speechless over how atrocious this is.

  14. rpm773 says:

    The irony in all this is that education in debt management the student will potentially receive while at State U and after is far more vauable than the education he’ll receive in his course of study

  15. diasdiem says:

    The rules may change, but the game never ends.

  16. ahecht says:

    Honestly, a debit card tied to my 3.25% tax-deductible-interest student loan doesn’t sound bad at all.

  17. sopmodm14 says:

    if i ever found out my school did this, its another reason for me not to donate to alumni fund

    and they’re are plenty already :

    -mandatory healthcare with their “partner”
    -parking fee (when i had not car)
    -parking ticket (when i had a car, but no spot) – no expansion
    -technology fee increase (when they eliminated a whole computer lab section, didn’t acquire any more, and every 1/4 one is out for repair)
    -and our president bailed out and quit on us day before semester started and didn’t tough it out the whole year

    SUNY baby

  18. TasteyCat says:

    And unlike credit card debt, if you get to the point where you’re drowning in student loan debt, it’s not going to be charged off and possibly forgiven. You will pay it back, in this life or the next. Thanks, CARD Act.

  19. crazydavythe1st says:

    This is a problem I encountered actually. It’s not so much running up the student loan. We tend to do that anyway :)

    It’s the fact that banks operating around these schools are positioning themselves as being “student friendly” – the first few weeks of school, they’ll give out countless t-shirts, thumb drives, shoulder bags, outright cash, and one bank was even giving random signups free I-pods. They’ll usually lead off with stuff like “banks are pretty much the same, so why not go with one that gives you free trinkets?” From that, students will open accounts that charge fees for debit transactions, require minimum deposits, make them pay for debit cards, etc. The most popular bank near my school charges a $5/mo acct. maintenance fee for checking unless you keep over $5k in the account, if I recall. They practically count on the fact that students won’t fight for their rights as well, and will often hold checks up to two weeks to generate overdrafts wherever they can.

    Naturally, the only ones not giving out tons of free crap are the credit unions near the school that don’t have all that money to spend frivolously. Most students ignore them.

  20. Frank_Trapasso says:

    I’ve juuuust started to see people calling in to complain about this. It’s one of the worst freaking ideas I’ve ever heard. When I went to school, my loan refund was transferred to my checking account the same day. I know, because I ate a massive burrito from Chipotle that day. Yum.

  21. pegasi says:

    The higher one student card isn’t bad so long as you run transactions as credit, then there’s no charges. If you want cash, go somewhere that gives cash back on transactions like wallyworld. Simple.

  22. gabrewer says:

    And another sub-basement is added to the circle of hell reserved for card issuers. I’m glad I was not exposed to this type of thing when I went to college in the early ’80s. I didn’t get my first credit card, a Sears card, until I was a senior in response to a mailing they sent me. And then I was scared to death to use it for fear of running up any balances (thanks Mom & Dad for ingraining that in me). Not to excuse the personal responsiblity of the students themselves, but this is so blantantly predatory of the part of the entities involved that it’s almost unbelievable. I would hate to make my living this way.

    • richcreamerybutter says:

      As you can see above, I agree with you on the opinion of card issuers. Here’s the only issue with the personal responsibility argument:

      http://www.washingtonpost.com/wp-dyn/articles/A52687-2005Jan31.html

      Our brains don’t fully develop until our mid-20s, which is after undergraduate years for most kids. Banks know full well that those in this age range are more susceptible to risky behavior, and take full advantage of the fact.

      Obviously you can’t apply sweeping brain development stats to everyone, since we all mature at slightly different rates. It is interesting, however, the arbitrary range of ages required for certain activities: for instance, you can join the military and also ruin your financial life at the age of 18, yet are considered a risk for car rentals or alcohol consumption. In the instance of financial ruin and the predatory nature of issuers on college campuses, note that the Feds don’t consider you an “independent” for FAFSA purposes until the age of 24.

      Maybe not a conspiracy, but I don’t think this is entirely a coincidence.

  23. AllanG54 says:

    Why wouldn’t the excess just be sent back to the lender so that the loan was less. That’s what I would have done if I had needed loans. And when my daughter took out loans they were never for more than the exact amount of tuition and dorming. I paid for her books and incidentals.

  24. Mimet says:

    Huhn. I got one of those in my orientation packet today. Almost fell for that once.

  25. Aceman90000 says:

    I’ll give you a two-fold comment, A being something for the readers to think on, B being the ‘catch’.

    A) At maximum 7% interest rate, with only the ‘Unsubsidized’ loans accrueing interest during college years, using student loans for needed purchases like Laptops, Cars, etc. is actually preferable to, for example, CarMax’s average 12%-19% interest rates. I personally have been using my student loans for such ‘large’ purchases to MAJORLY offset my personal interest costs while I pay off my car, house, and laptop via student loans.

    B) My school uses a company called ‘Higher One’, which actually encourages you to spend your money in-browser at “any of our affiliates”. Starbucks, Amazon, Walmart, 7-11, Chic’Fil’A, Quizno’s, Pizza-Hut……. You get the idea.