Understand what your student is agreeing to by signing up for one of these cards.
By Anne Vaccaro Brady
Colleges across the country are increasingly outsourcing the distribution of student financial aid “refunds.” The largest players are Higher One, as well as major banks Wells Fargo and US Bank, among others.
Your student has a good chance of receiving an offer for a campus debit card once he heads to college. According to the U.S. Public Interest Research Group Education Fund (U.S. PIRG), there are “almost 900 card partnerships between colleges and banks or other financial firms at schools with over nine million students, or over two in five of all students nationwide.”
What is the refund? Once tuition is paid, students may have a positive balance remaining from scholarships, grants or loans (or from dropping a class). The funds are intended to cover additional education and living expenses like textbooks, commuting fees and rent.
Traditionally, colleges printed and mailed these refunds as checks. Today, banks and financial firms like Higher One handle the distribution at many schools. Students can quickly receive their refund on a prepaid debit card or have it deposited directly into a checking account associated with the partner organization.
The problem becomes the cost of the account, i.e. the fees charged by the refund partners.
Understanding why colleges make these deals With many public universities losing state funding, this is an easy way to cut costs. Private colleges are looking for ways to save as well. Some banks offer colleges additional financial incentives to service these accounts. Higher One no longer offers incentives.
Banks like Wells Fargo and U.S. Bank also save colleges money by combining the debit card and ID card into one, and producing the new card, with the university logo, for the school. (One problem with this type of card is that when it’s lost, a student loses access to both campus services, like the dining hall, and their bank account.)
The debit card often seems like a student’s only option If parents and students don’t read carefully, they may assume there is only one way to receive their refund or that the college requires them to use the combined ID and debit card. But students always have a choice.
According to the Consumer Financial Protection Bureau, “There may be a financial institution that operates on your campus, but you generally can’t be required to use a specific account or card to access your student aid. If you have received a federal student loan, your school must provide a paper check or cash option.”
Higher One touts their Easy Refund to the OneAccount as “the fastest refund option.” Money is deposited directly into a student’s Higher One account the day it is available. A direct deposit to another bank will take two to three days and a printed check, five to seven days.
Fees, fees and more fees Though Higher One and the banks may advertise that there is no cost to open an account, the question is what fees are involved in maintaining that account, including required minimum balances.
Potential fees include charges for monthly maintenance, use of “foreign” ATMs (ATMs not affiliated with the financial institution), purchases made with the debit card, overdrafts and card replacement. These fees can be steep.
In 2012, the Federal Deposit Insurance Corporation (FDIC) announced that Higher One would repay approximately $11 million to about 60,000 students to settle allegations that it had charged excessive nonsufficient fund fees for students who overdrew their accounts. Higher One was required to change the way it imposes those fees in the future. Higher One Holdings eventually sold its student checking and refund business, still called Higher One, to Customers Bancorp.
The good and the bad Campus debit cards and their associated checking accounts might be the best option for a student who can’t open a bank account any other way.
With fewer banks offering “college” accounts, this choice might work while a student is in school.
Most of these institutions have ATMs on or near campus, but don’t always provide 24/7 access.
Keep in mind that at the beginning of a semester, these ATMs are likely to be overloaded as large numbers of students try to retrieve their money at the same time.
This is your student’s financial aid money meant to help pay for college expenses. Should she be handing any of it over to financial institutions?
How to choose whether to accept the offer These debit card programs sell students on gaining instant access to their money. It’s more important that they pick the best bank for their needs.
Compare the fees and minimum balance requirements between the refund distributor and any other bank or financial institution your student already uses or is considering switching to. It might be easier for your student to pay a $5 monthly flat fee (totaling $60 per year) than to keep a minimum balance of $300 in his account.
Consider your student’s money management skills to determine whether he should receive the refund directly or if it should come to you, especially if the refund is significant. In our family, since my husband and I pay our children’s tuition, any refunds, for a dropped class, overcharge, etc., are deposited directly into our checking account, not theirs.
If the refund is from a loan, you might want to save that money in a separate account and have it available for next year’s tuition so your student can borrow less in the future.
Bottom line Before your teen signs up for any campus debit card account, make sure all of you understand what she’s agreeing to. Thoroughly review the institution’s website. Most importantly, remember your student can choose her own bank.
Share your advice about and experiences with campus debit cards in the comments section below.