New regulations from the U.S. Department of Education, most of which took effect July 1, should protect students from high fees and lack of transparency that often accompany debit cards and prepaid credit cards offered on college campuses.
The rules are particularly relevant to financial aid recipients because many colleges utilize these campus-sponsored products to provide students with the remainder of their financial aid after tuition and other institutional expenses are paid. Students use these disbursements to pay for additional school-related expenses including textbooks and off-campus housing.
According to the U.S. Government Accountability Office (GAO) and the U.S. Public Interest Research Group (U.S. PIRG), institutions enrolling approximately 40 percent of all college students have debit or prepaid card agreements with financial institutions. The U.S. Department of Education estimates that nearly $25 billion in federal student aid is refunded each year through campus-sponsored cards.
Under the rules, colleges must give students greater choice on how to receive their federal student aid, provide a list of options, provide objective and neutral information, and ensure students using campus cards aren’t charged “excessive and confusing” fees (such as transaction-swipe fees and overdraft fees). They must also be more transparent about their partnerships with banks.
“It will be a significant help to students,” Mark Kantrowitz, publisher and vice president of strategy at college search and scholarship portal Cappex.com tells Financial Advisor. “The essence is that families can now choose how they receive the refunds and can have the money deposited in a bank of their choosing, that colleges cannot steer them to a particular debit card provider, and that they cannot be charged excessive fees.”
Credit balances that remain after financial aid funds are applied to institutional charges must be refunded to the student within 14 days, he says, regardless of how the student chooses to receive the refund. “Colleges cannot introduce artificial delays,” he says.
Kantrowitz encourages students to ask their school for a complete list of fees, ask about the proximity of fee-free ATMs to the campus, and ask how to have the money direct-deposited into a bank account of their choosing instead of through the school’s preferred debit card. A school’s business office or bursar’s office generally handles refunds. “Some colleges have a ‘one-stop shop’ where the customer service functions of the financial aid, registrar and bursar’s office are all integrated,” he says.
Students having trouble getting their financial aid refund should first speak with the bursar’s office, then with the financial aid office, says Kantrowitz. “If they get nowhere, they should file a complaint with the U.S. Department of Education,” he says.
Anne Gross, vice president of regulatory affairs at the National Association of College and University Business Officers (NACUBO), a Washington D.C.-based membership organization representing more than 2,100 colleges and universities, says most schools will post menu options for financial aid refunds on their student portals. NACUBO encourages students to receive refunds electronically, either on a debit card or through their own bank account.
“What really gives us heartburn are students who don’t have a bank account and get paper checks,” Gross tells Financial Advisor. “We’re very concerned about students improving their financial literacy and budgeting their resources.”
To help colleges prepare for the new rules, NACUBO has had many conversations with its members and it compiled a checklist of compliance dates, says Gross. “Companies (banks) are pretty on top of this,” she adds, “because it’s key to their survival.”
In December, the Federal Reserve ordered industry leader Higher One Holdings to provide restitution of approximately $24 million in fees to about 570,000 students who opened accounts with Higher One while Higher One’s website and marketing materials were deceptive. The Fed also imposed a civil penalty of more than $2 million on the company. Higher One announced the sale of its disbursements business in December.
The evolution of the new regulations “has really pushed the market,” says Gross. “Fee structures have changed in the last two years since the rulemaking got underway.” She thinks some players who left the industry amid uncertainty may return. “Everyone will get used to the new regime going forward,” she says.