As if college students weren't broke enough already, hundreds of colleges have cut deals with banks to build fee-laden debit cards and prepaid debit cards into the school IDs they issue to students, according to a new study by by the U.S. Public Interest Research Group Higher Education Fund.
From the study:
While banks were under close scrutiny for the marketing and terms of private loans and credit cards on campus, they were quietly establishing a new and rapidly growing campus debit and prepaid card business. Just as they had developed relationships with colleges to issue exclusively branded credit cards or heavily promoted private student loans, banks and new, nonbank financial firms have been co-branding ATM/debit cards on behalf of their collegiate partners, turning college IDs into debit cards and taking over financial aid disbursement systems.
In the wake of restrictions to credit card marketing and student loan reform, the next financial frontier for banks and financial firms has been that growing business of marketing campus debit and prepaid cards and offering incentives to schools to outsource or privatize various financial and administrative functions.
Of the 50 largest public 4-year universities, 32 have cut such deals. Among private universities, 26 of the largest 50 have.
As the study's authors note, giving students an electronic way to pay for school services, make purchases on-campus and receive college aid isn't bad in and of itself. The problem comes when banks pay more attention to the amount of money they'll make signing on with a particular vendor than they do to how their decision will affect students' finances.
For instance, one deal between Ohio State University and Huntington Bank yielded $25 million in payments to the school over 15 years, and $100 million in lending and investment for nearby neighborhoods, according to the study.
I don't know the details of the deal, but I'd be willing to bet Huntington Bank isn't making this deal out of the goodness of its heart. It's looking to make that money back -- and more -- and some of that money will very likely come out of the pockets of students in the form of fees.
That's surely true of college provider Higher One, highlighted in the report as one of the largest providers of financial services to universities. The company's debit cards are used by 2.1 million students on 520 campuses nationwide, but probably not for its consumer-friendly pricing. A story by Daniel Wagner of the Associated Press documents some of the cards' fees:
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.
This reminds me a lot of the deals state and local governments cut with prepaid debit card providers to distribute government aid such as unemployment. Many of those deals worked out great for the financial services firms, and some even worked out OK for the government entities that negotiated them, but few seem to be geared towards giving the beneficiaries a good deal. They end up paying ATM fees, overdraft fees and other charges out of benefits already stretched paper thin.
Like those deals, I'd expect agreements between banks and colleges to eventually receive some attention from the Consumer Financial Protection Bureau. And that's probably for the best. Colleges, which are tasked with helping guide kids fresh out of high school toward adulthood, the primary focus of these deals should be making whatever card they put in the hands of students is as easy and safe to use as possible.
What do you think? Have you ever had an experience with debit cards or prepaid debit cards distributed by a college? If so, how did it go?
Follow me on Twitter: @ClaesBell.