The cost of a college education continues to rise at the same time as many schools seek to trim their budgets. This means that a growing number of colleges are turning to financial institutions to handle the distribution of student aid. And that means that students all around the country are receiving their financial aid on cards that end up making money for the bank.

A new report from the U.S. Public Interest Research Group found that around 900 colleges — including 32 of the 50 largest 4-year public colleges — have affinity partnerships with financial institutions that not only allow these businesses to distribute aid money onto student ID cards or other campus cards, but also put their own fee-laden products on those same cards.

While students can often opt out of these cards and still receive their financial aid in the form of a check or direct deposit, U.S. PIRG found that these schools allow or even partake in the aggressive marketing of the cards.

Additionally, some of these financial institutions will open a checking account with the bank — tied directly to the card — unless the student opts out.

“Campus debit cards are wolves in sheep’s clothing,” says Rich Williams, U.S. PIRG Higher Education Advocate. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

The Associated Press looked at the fees charged by Higher One, the company responsible for more than half of these affinity partnerships:

$50 if an account is overdrawn for more than 45 days, $10 per month if the student stops using his account for six months, $29 to $38 for overdrawing an account with a recurring bill payment and 50 cents to use a PIN instead of a signature system at a retail store.

U.S. PIRG says that 80% of Higher One’s revenues — $142.5 million in 2011 — come from fees related to student aid disbursement cards.

And some colleges are benefiting directly from these partnerships. U.S. PIRG gives that Huntington Bank paid $25 million to co-brand and link their checking accounts with Ohio State University student IDs.

“The campus debit card marketplace is tilted so that students can’t get a fair deal,” said Ed Mierzwinski, report co-author and U.S. PIRG Consumer Program Director. “Campus administrations and policy makers have the power to clean it up.”

U.S. PIRG has called on the Consumer Financial Protection Bureau to upgrade consumer protections on prepaid cards.

You can read the whole report HERE [PDF]

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