“Now bank middlemen are making out like bandits using campus cards to siphon off millions of student aid dollars.”

Colleges’ bank card deals saddle students with fees

• Article by: DANIEL WAGNER , Associated Press                                               Updated: May 30, 2012 – 7:14 PM

Two out of 5 higher-ed students attend schools with such deals, report said.

WASHINGTON – As many as 900 colleges are pushing students into using payment cards that carry hefty costs, sometimes even to get to their financial aid money, according to a report released Wednesday by a public interest group.

Colleges and banks rake in millions from the fees, often through secretive deals and sometimes in apparent violation of federal law, said the report, an early copy of which was obtained by the Associated Press.

More than two out of five U.S. higher-education students — more than 9 million people — attend schools that have deals with financial companies, says the report, written by the U.S. Public Interest Research Group Higher Education Fund.

“For decades, student aid was distributed without fees,” said lead author Rich Williams. “Now bank middlemen are making out like bandits using campus cards to siphon off millions of student aid dollars.”

Programs such as Higher One’s shift the cost of handing out financial aid money from universities, which no longer have to print and mail checks, to fee-paying students, he said.

‘Not cheaper for the students’

The fees add to the mountain of debt many students already take on to get a diploma. U.S. student debt tops $1 trillion, said the Consumer Financial Protection Bureau. Student loans have surpassed credit cards as the biggest source of U.S. unsecured debt, said the bureau, which regulates cards and private student lenders.

It took Mario Parker-Milligan less than a semester to decide that he was paying too many fees to Higher One, the company hired by his college to pay out students’ financial aid on debit cards.

Four years after he opted out, his classmates still face

more than a dozen fees — for replacement cards, for

using the cards as all-purpose debit cards, for using an

ATM not owned by Higher One.

“They sold it as a faster, cheaper way for the college to get students their money,” said Parker-Milligan, 23, student body president at Lane Community College in Eugene, Ore.

“It may be cheaper for the college,

but it’s not cheaper for the students.”

Among the fees charged by Higher One, according to its website, is a $50 “lack of documentation fee” for students who fail to submit certain paperwork. 

The U.S. Department of Education called the charging of such fees “unallowable” in guidance to financial aid officers issued last month.

Higher One founder and Chief Operating Officer Miles Lasater said that the company takes compliance with the government’s rules “very seriously,” and officially swears that to the government each year.

“We are committed to providing good value accounts that are designed for college students,” he said, and students must review the company’s fee list when they sign up. 

He cited a study commissioned by Higher One that declared Higher One “a low-cost provider for this market.” The same study found that the median fees charged to the 2 million students with Higher One accounts totaled $49 annually.

Among the fees charged to students who open Higher One accounts: $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.

Higher One has agreements with 520 campuses that enroll more than 4.3 million students, about one-fifth of the students enrolled in college nationwide, said public filings and the U.S. PIRG report. Wells Fargo and US Bank combined have deals with schools that enroll 3.7 million, the report says.

Students can opt out of the programs and choose direct deposit or paper checks to receive their college aid, but relatively few do. The cards and accounts are marketed aggressively using college letterhead and websites carrying the endorsement of colleges.

Offerings by financial companies vary by campus. Some issue checking accounts with debit cards. Others offer prepaid debit cards, which are similar to bank debit cards but can carry higher fees and offer fewer consumer protections.

‘TCF Bank is a valued partner’

University of Minnesota’s chief financial officer Richard Pfutzenreuter said that while its student card carries a TCF Bank logo on it, the ID office is run by the university, cards are issued by university employees and students are under no obligation to open a TCF checking account.

“If a student does open an account, the university receives a royalty payment,” he said. Those payments add up to about $1 million a year, he said. “TCF Bank is a valued partner to the university.”

A student with a TCF checking account can link the account to a U Card and use it at an ATM, said the U’s website. “It’s a convenience option,” Pfutzenreuter said.

Having such visibility on campus is a big benefit for banks seeking exclusive access to an untapped group of potential customers.

Many banks are willing to pay universities for the privilege. It’s difficult to get a full picture of how much money the schools are getting because most of them refuse to release their contracts with banks. Only a handful were available to the authors of the report.

Campus card deals have become more popular in part because of recent legal changes that cut into the profits banks can generate from students.

A 2009 law banned credit cards given to students who had no way of repaying. It forced colleges to disclose deals with credit card companies and stopped some forms of marketing, such as offering students free gifts in exchange for obtaining a credit card.

Staff writer Jenna Ross contributed to this report.

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