Millions Of College Students Pushed Into Receiving Financial Aid On Fee-Laden Cards

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]


Edit Your Comment

  1. Coffee says:

    This is what comes of systematically cutting and slashing college budgets over the past several decades – especially the past few years. Colleges scramble to hit the same FTE thresholds the states impose in previous years, but with a significant smaller budget, and in the process, they seek alternate revenue sources wherever they can. In the end – as always – it’s the students who suffer.

    • Blueskylaw says:

      Mason: “Coffee?” Goodspeed: “No, I’m fine, thank you.” Mason: “Offer me, coffee.”

    • webweazel says:

      Not all of them are suffering- Armstrong Atlantic U. in Savannah, GA a few years ago bought an entire strip mall to expand their campus. I just heard they have also recently bought an entire indoor mall (Savannah Mall) to expand again.

      • Coffee says:

        While this is true, as usual, there are plenty of asterisks. For example, many people don’t realize that colleges have different budgets for different things, and that money from one cannot be used for something else. The best example is capital projects budgets, which are important because they prevent campuses from falling into disrepair. For example, in my area, the local college – which was seeing a 15% budget cut from the state and having to reduce classes across the board – was, at the same time, building a beautiful new library on a satellite campus. Those funds were earmarked by the state for that purpose and nothing else.

        • Firethorn says:

          Depends on whether the college is public or not, but in general true for ANY government organization. We get pots of money, and it’s a major violation to spend money outside of the pot’s purpose.

          Best we can do is that there is sometimes overlap – O&M money can be spent to fix a building, but not renovate it, but you can also ‘renovate’ a building in order to fix it. Building renovations is a seperate pot than ‘operations and maintenance’.

          You have to be careful. An AF General was fired for using O&M money to renovate his (government) home. Basically, he went too far; if he’d just replaced the stove rather than redoing the whole kitchen(just part of the work done), he’d have been fine by simply arguing that the stove was ‘end of life’ and needed replacement for usability/safety/etc…

          • history_theatrestudent says:

            Actually I wouldn’t be surprised if it affects private colleges too. They must maintain accreditation, and financially stability along with practices including the maintaining of buildings/campus is something that’s looked at along with mission statement. If a college loses accreditation, its pretty much the end of the game with the fat lady coming out to give a musical number.

    • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

      It’s not just tight budgets, it’s being unwilling to make the tough decisions and say we can’t afford this and that if we don’t do this, so schools try to add to their revenues in ways they shouldn’t.

      (The article is about banks and colleges, but I’m really thinking about primary and secondary schools and their growing reliance on fast food, junk food, and advertising.)

    • carlogesualdo says:

      This is actually looked at by the university as a cost-cutting measure, not a revenue-generator. The school sends refund information to the bank, the bank issues the refunds to the students’ accounts. Nobody has to cut checks for anyone, nobody has to staff a desk handing out refunds. It cuts paperwork and payroll costs.

  2. Blueskylaw says:

    It seems that the general public just can’t catch a break from the banks and other financial institutions’ shenanigans. If a bank even thinks that you have a spare quarter burning a hole in your pocket they immediately come out with a “spare quarter burning a hole in your pocket fee”
    I had a refund put on a debit card and it was absolutely fee laden, including a $1.00 fee if you didn’t have enough money on the card to purchase something and the transaction was rejected.

  3. SiddhimaAmythaon says:

    ya when my unemploeemnet . Luckly they had an option just just empty the account on each paymnet to my REAL back account.

    • crispyduck13 says:

      Hey Consumerist, fix your fucking flag button already!

    • Dave B. says:

      Could you repeat that in English please?

    • carlogesualdo says:

      I can translate: There’s an option where student’s can tell Higher One (don’t know about other “banks”) to transfer any refunds from the HigherOne debit card account – actually a checking account – directly to another bank. It costs nothing to do this.

  4. Costner says:

    “$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.”

    Call my crazy, but I don’t see a lot wrong with these fees. Every single fee here can easily be avoided if the student has a brain and is capable of managing his or her money.

    The overdraft fees don’t seem all that excessive – because frankly these are college kids. They don’t typically have solid credit histories, some don’t have a steady income stream, and there is always a chance the school/bank won’t ever collect the overdrawn funds. The fee reflects the risk. That said – there should be a way to opt out of any overdrafts which I beleive is required by law (technically they have to opt IN, so this should be a non-issue).

    I’m not a fan of the inactivity fee, but what student will be able to go more than six months without using any money? Seems a tad unlikely considering you have tuition payments, fees, probably a late night pizza delivery etc, etc.

    The one I don’t understand is the PIN rather that signature fee. I assume that is because the bank can’t collect as much on debit transactions as they can on credit transactions, or perhaps it is because people can use that to withdraw cash… and due to a lack of signature a student can claim the card was stolen and someone hacked or guessed the proper PIN. Perhaps the fee is meant to offset some of the fraud losses associated with PIN transactions.

    All things considered – these fees aren’t really surprising and unless they are knocking off $5 or $10 a month for “maintenance fees” or adding other fees which cannot be avoided I honestly have a hard time feeling any level of outrage here.

    • Coffee says:

      The problem with your logic is you’re treating the students as if they’re high-risk credit card customers, when, in fact, they’re receiving money already entitled to them, loaded onto cards. They should be given a check to deposit, but the colleges and banks are going this route instead.

      • sagodjur says:

        Not to mention that with the exception of a small amount of grants, it’s money they’re going to be charged interest on. So in effect, they will be charged interest on money they spend on fees because they didn’t spend their money in the most responsible way.

      • Costner says:

        Overdraft fees suggest the student is spending more than they are “entitled” to does it not? Besides as I said current law requires people to opt-in for such overdrafts on debit cards, so I doubt this is an issue for many students.

        Also, per the article the students still can receive their funds via check if they so desire. However for some students, a debit card solution might be more convenient if they don’t have a checking account, or if they don’t have a local bank (making depositing or cashing a check more difficult). In theory if they are using the money for tuition and related expenses they should never incur any of these fees, but if they aren’t sure they can always get the traditional check and call it a day.

        • Kat says:

          You can get a check for your refund if you want to pay High One $8, or you can have your money direct deposited by Higher One into another bank account if you want to wait a few days (which some people can’t). Students who receive aid from these schools don’t get a choice in whether or not they want to deal with this company. Even students who don’t receive aid have to deal with them. My old school was gracious enough to open a Higher One account for me without my permission, before I applied for any aid, and then informed me it would cost $5 to close it.

    • mrscoach says:

      Umm, my son can go close to a year without using his student account, probably more. He has this little thing called a checking account that he uses, and has a meal plan so he doesn’t ‘pay’ for food (it’s already paid for). He has also looked into moving all the money from his student account into his checking account, but hasn’t found a way yet.

      A fee for NOT using the account? I’ll raise Holy H**l if that happens, but since it hasn’t yet, I doubt it will now. He’s had this account for 2 years, I guess I should remind him to use the money in the account before he graduates next May.

    • cheri0627 says:

      It’s really easy to go 6 months without using the account one’s financial aid is dumped into, especially if it’s only a small amount used to purchase books or pay for classes and one doesn’t take spring/summer classes because the student is working or got an internship or something like that.

      • Costner says:

        I can see that, but I think in that case these accounts would be closed. I suppose it depends upon the account, but I suspect the fees are for those people who still have a balance but don’t use it – as in they let it sit dormant. I doubt many college kids have this problem, and those that have extra money should probably find a better place for it.

        • carlogesualdo says:

          No, the account isn’t closed because it’s attached to the student’s college enrollment. As long as the student is going to school, the account will be there.

          • carlogesualdo says:

            On second thought, some colleges force their employees to get their refunds this way too – like travel expenses, and reimbursements for small departmental expenses where it seemed easier (at the time), to just buy it and submit a receipt. I think payroll is also an option. I think my school may be rethinking this strategy, though, since my last travel reimbursement came by check. I would change to the opt-out option, but it’s an awful lot of trouble after the fact.

  5. c152driver says:

    Shame on these colleges. They should be protecting their students’ interests instead of selling them out to the highest bidder.

  6. blogger X says:

    My College started this up this year. Thank goodness I finished my degree last December! Now, finding a job… :-(

  7. JonBoy470 says:

    I remember the good old days of going down to the financial aid office once a semester to sign the promissory notes. Schools that sign on for crap like this are just accelerating their own slide into irrelevancy. As it is, it’s rapidly getting to the point that college is no longer cost effective from an “increasing your earning potential” standpoint.

    • CommonSense(ಠ_ಠ) says:

      Well it comes down to why go to college when half you salary will go towards loans for 15 years.
      You will make less, but have less expenses just getting a job and moving up during those same 15 years. At some point not going to college will for sure give you a higher expendable income than with going to college.

  8. CommonSense(ಠ_ಠ) says:

    Why not opt out??

    • turnkeydb says:

      Because they don’t tell you that you can opt out. I took some classes at my local CC while I was out of work for a couple of years and the college said explicitly there was no other way to get your money except to use the Higher One card for any type of “refund”.

      I didn’t find out until later that all you need to do is just not use the card for a couple of weeks to automatically generate a check.

      • carlogesualdo says:

        Each school is allowed options on how they want to implement this. Some schools will allow students to opt out for a paper check, others, well…you know.

  9. Beef Supreme says:

    Editor please…

    “The cost of a college education continues at the same time as many schools seek to trim their budgets.”

  10. El_Cheapocabra says:

    While CFPB is working on this college scam, how about going after the unemployment “debit card” system in some states? Same fees, same problems.

  11. Kat says:

    If anyone is interested, here is Higher One’s fee schedule:

  12. carlogesualdo says:

    Lest I be thought a shill for HigherOne, I should make some remarks. I got put on a committee at my school when we contracted with HigherOne to handle our student refunds. I didn’t have anything to do with the decision to use their services, nothing to do with the policies governing its use. My only role was to publicize the program to make sure students didn’t simply toss the card when it arrived in the mail. But as part of that committee, we spent several hours in training and had multiple publicity strategy meetings. I have good knowledge about how these work. It’s not pretty.

    Frankly, as an avid Consumerist reader, I was more than a little appalled at all the fees. But again, no one asked for my opinion. Instead, I turned it into my mission to educate students on how to avoid the fees. And it IS possible to use the HigherOne account and never incur any fees. It’s just not very easy.

    The first strategy is like others have mentioned – opt out. Have the school send you a paper check for the refund of what’s left after your grants, scholarships, and student loans pay your tuition and school fees. If a paper check is an option at your school – that’s not the case everywhere. But before you do, remember…the debit card is super fast. If they have to mail you a check, it takes days to roll through the check-issuance process and then you have to wait for the post office to bring it, and then you still have to cash it. HigherOne will send you a text message the very instant you have funds available to spend! DING!

    The account is actually a free checking account with a very strange setup – they send you a debit card and no checks. There is no bank branch on or around campus – just a HigherOne-branded ATM. You can deposit money into the account, but I don’t think I have EVER seen such a convoluted set of procedures to do that and can’t imagine why anyone would want to. Until I had to (more on that in a minute). The procedure more less involves dropping your deposit into a night box somewhere and wait until someone picks it up and puts it in the mail for you, at which point the post office brings your deposit to the bank in Massachusetts (or maybe it’s Delaware…one of those banking haven states over there). In explanation, the corporate reps like to use international students as an example of someone who might use the account that way. Nothing like trying to trip up the guy who doesn’t know any better and doesn’t have many choices, right? They don’t expect anyone else to actually use the account as a real checking account.

    They make it really easy to share money with your friends, although I can’t remember the procedure. I guess I don’t have any friends. Because of an odd balance in my account, I ended up having to tie the account to my real checking account so I could just transfer in money when I needed to. Funny…you would never think of having to transfer money IN just so you could get it OUT (more on that later).

    The big deal with these guys is the debit card, which as you’ve seen, is full of fee traps. They impress on you to swipe it only as a credit transaction when you make a purchase with the card. Credit is free, debit swipes incur a rather steep fee. Stop for gas, make another stop for Starbucks in the morning, another for lunch at Mickey Ds, another one for snacks in the afternoon, stop at the grocery story on the way home in the evening, and you’re staring easily at $3+ in fees, just for a normal day’s activities. So you have to remember to swipe it as credit. And then you have to remember how to make the machine put it through as credit when the machine determines it’s really debit, which they’ll teach you. But “cancel” buttons are scary red things. On learning all this, my first thought was: don’t banks get higher transaction fees from retailers for credit transactions vs. debit? No wonder they don’t want you to use debit. Easiest way to avoid fees here is to always withdraw your money from the ATM in cash.

    Then of course, there are ATM withdrawals. Pretty typical stuff. Use it at another bank’s machine, you pay a fee to your bank, you pay a fee to the other bank. HigherOne put their ATM in the student union, withdrawals in increments of $20 – no surprises there. Got $19.95 in there. Tough luck. Maybe you’ll get lucky and buy something on credit that comes out to exactly $19.95. Ooooh…$19.91! Just missed it! What do you do with that other 4 cents? Nothing. You let it sit. Until your account has been dormant six months, when the dormancy fees kick in. First you have 4 cents, then you have a negative balance that just keeps on taking. Easiest way to avoid a dormancy fee? Use the account regularly or drain it. If you have a zero balance, it’s not “closed” per se, but they don’t charge a dormancy fee because they treat it as if it’s closed. On second thought, it’s more like a Bank of America procedure – it’s closed until somebody decides to put money in it, then it’s open and ready for more fees.

    As I stated earlier, students can opt to have refunds redirected to their real bank account, although they do make a THING about how much faster you can get your hands on your money if you let them put it on the debit card. Speed really is a THING with college students, since they are often waiting on financial aid refunds so they can buy their books, pay rent, etc. (nobody likes a homeless person who doesn’t do the reading, you know. It’s just so…irresponsible of them).

    So now they’ve got this odd amount on the debit card – something like $832.12 – and a deep determination to avoid paying any fees. What to do? Go straight to the book store and use credit? Go straight to the ATM in the student union and withdraw everything in cash? The answer is obvious: the book store, of course Because can you withdraw $800 from an ATM in a single transaction? I dunno. I’ve always been afraid to carry that much cash.

    After buying books (credit, not debit, mind you), you have a much more manageable $264.53 in your account (that, folks, is NOT exaggeration on the cost of textbooks). So now you’re ready to drag yourself back to the ATM in the middle of campus, in the 100-degree heat to get the rest of your money. Can you withdraw $260 from an ATM. You bet. Can you withdraw $264.53? No way. So now how do you get all of your money. Well, maybe you’d be willing to forego that $4.53, but you REALLY want to avoid that dormancy fee that you’d get from leaving that untouched for 6 months.

    Here’s where the next set of fancy footwork steps in. You have to put money IN to the account in order to get all of the money OUT of the account. Which means you can’t do it today. First, you have to transfer exactly $15.47 – not a penny more or less, and you’d better triple-check your math (thank goodness for that C I got in College Algebra, right?) – transfer $15.47 (don’t make typos either) from your real bank account into your fakey fast HigherOne account. And then you wait. It takes them 2 or 3 days to process this (or maybe it’s just 24 hours – it’s been awhile) and then you have a nice even-numbered balance of $280 in your account, at which point you can withdraw this, in full, at the campus ATM. After you sweat to death dragging yourself over there for the fifth time – because you’re not an 18-year-old with boundless energy, you’re actually a 40-year-old second-careerist who doesn’t have time for this S#!T.

    And that, my friends, is how you avoid paying fees on college debit cards.