At the Student Loan Ranger, we like to remind students of ways to avoid spiraling debt and to use student loan money wisely. And, with a new school year about to begin, we want to join the warnings about what appear to be school-endorsed debit cards.
At the beginning of a term, many students receive financial aid refunds—money remaining after a school subtracts the cost of tuition. These are funds from scholarships, grants, and loans that help pay rent and cover costs for transportation, food, and textbooks.
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Students can receive these funds in a number of ways. Often, schools issue paper checks, or students may sign up for a direct deposit into a personal account.
An increasing number of students also have the option to receive their refund on a debit or disbursement card, which can be obtained through your school and may also have multiple on-campus functions. For example, it could also be your school ID, meal card, and parking pass.
Sound like an awesome, hassle-free way to receive your refund? Think again. As meticulously laid out in "The Campus Debit Card Trap," a report by U.S. Public Interest Research Group (PIRG) Education Fund, these cards come replete with fees, including overdraft and insufficient funds fees, reloading fees, transaction (including PIN) fees, abandoned account fees, account closure fees, check fees, refund fees, replacement card fees, balance inquiry fees, dispute fees, transfer or wire fees, and fees for using a different bank's ATM.
While you should always be wary of fees, in this instance, these will come from your financial aid. Loans you borrow or grants you receive to help pay for your education could instead be used to pay fees to third-party financial institutions.
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If you think these fees are run-of-the-mill, think again. Last week, HigherOne, the leading provider of cards to campuses across the country, reached a settlement with the Federal Deposit Insurance Corporation (FDIC) for alleged unfair practices and agreed to pay $11 million in restitution to approximately 60,000 students.
So what can you do? That letter you received in the mail seems like you have no choice, as if your school wants you to take that shiny new card with your name and its logo already printed on it. But don't let yourself get caught up in the confusion. You do have a choice.
The Consumer Financial Protection Bureau (CFPB) recently issued a consumer advisory with three important tips:
• "You can't be required to use a specific bank or card." Even if there's a bank on campus or you could have funds disbursed on a student ID, schools must offer a paper check or cash option.
• "Consider choosing an account before arriving at school." Evaluate fees. Some banks don't charge for using different ATMs.
• "If your school offers it, sign up for direct deposit as soon as possible." This should get you your funds faster than a check.
"The Campus Debit Card Trap" has a few more key recommendations, including:
• "Don't get the account if you don't understand the fine print." If it's too long to read, consider getting a paper check or direct deposit into an account you do understand.
• "Don't opt in to overdraft 'coverage' and don't overdraw your account."Fees average $34, and, according to an FDIC study, 46.4 percent of young adult account holders incurred overdraft fees, and 15 percent of those had more than 10 in one year.
• "Know the access you have to your money." Avoid ATM fees and plan ahead for long lines and limited funds at campus ATMs.
• "Take care when adding money to your account." Reloading cards cost money, so plan ahead.
• "Complain loudly and often on campus if you have a problem." Your school has authority to renegotiate a contract with the financial institution.
• "Complain loudly and often to off-campus watchdogs if you encounter a problem." You can file a complaint with the Department of Education's Office of Inspector General (or call 1-800-MIS-USED) or the CFPB if you have a specific problem with your student checking account or debit card.
The CFBP also wants you to share your experiences getting financial aid funds to help inform policy and regulation, and the Department of Education will address students' role in deciding to accept debit cards or other banking services in light of costs and fees as part of an upcoming negotiated rulemaking.
Good luck this semester, and remember to use your financial aid wisely. To learn more about student debt and options for relief, download our free manual and register for a free webinar. And for news and tips, follow us on Facebook and Twitter (#studentdebthelp).
Radhika Singh Miller is a program manager for Educational Debt Relief and Outreach at Equal Justice Works. She has served on student loan committees in the Department of Education's negotiated rulemaking focusing on the College Cost Reduction and Access Act (CCRAA) and other debt relief initiatives. Radhika graduated from Loyola Law School Los Angeles. Prior to joining Equal Justice Works, she was a staff attorney at the Partnership for Civil Justice, focusing on constitutional and civil rights litigation and advocacy.