Why Are Colleges Forcing Students Into Expensive Debit Cards?

Posted

Check out another great post from our friends at Credit.com:

In recent years there has been a lot of scrutiny for credit card lending agreements between financial institutions and colleges across the country.

And while many of those have gone away, a new type of partnership seems to have sprung up to take their place.

Currently, there are about 900 agreements between card issuers and institutions of higher learning to promote the use of prepaid debit cards, which typically carry sizable fees, among the schools’ student bodies, according to new research from the U.S. Public Interest Research Group.

In all, these agreements affect more than 9 million students, roughly 42% of the total college population nationwide.

(Credit Score Tool: Get your free credit score and report card from Credit.com)

Many of these agreements are struck with the nation’s largest institutions, as well, the report said.

In all, 32 of the 50 biggest public, four-year colleges in the country have these agreements, as well as 26 of the 50 largest community colleges. Six of the nation’s 20 biggest private schools also have these partnerships, including Liberty University, the University of Pennsylvania, DePaul, Drexel, Western Governors, Johns Hopkins and Northwestern.

This practice can be especially problematic because some schools require students to use these cards to grant access to financial aid, the report said. As a consequence, many may end up actually paying fees to get the financial aid for which they’ve already qualified.

Of further concern is that colleges may engage in aggressive marketing, and at least one fee charged by one of the most prolific issuers of these cards would violate rules set by the U.S. Department of Education.

The reason universities engage in these partnerships is the same as when they pushed school-branded credit cards on students, alumni and faculty: They make money for every person who signs up, the report said. Many schools are struggling with budget shortfalls and this can provide an easy way to increase revenue, and can also reduce costs that come with the managing and disbursement of students’ federal financial aid packages.

(Student Loans: Research and compare options for student loans at Credit.com)

The practice of requiring students to take on fee-heavy debit cards could be particularly troubling to young adults because many are already facing significant financial restraints to get their degree. Most are graduating with tens of thousands of dollars in student loan debts and many also have at least one credit card with a few thousand dollars in outstanding balances.

More From Credit.com

Are Prepaid Cards Taking Over the World?
Overseas Shopping On Credit? Buyer Beware.
Is Using Your Credit Card to Save on Gas Smart?