Colleges are Still Cutting Deals With Banks for Exclusive Debit Card Programs for their Students

One thing you can do for your students is to Counsel them on the risk of using credit when they get to College. There are many cases of students maxing out their credit cards within 6 months of getting to College because credit is easy to obtain and students haven’t been educated properly on the dangers of using it.

The Washington Post recently reported on the big problem of Banks signing exclusive deals with Colleges to push specific debit cards. Many of these cards have huge fees attached (which helps the banks recoup the dollars spent with the College to receive the exclusive benefit).

A Consumer Financial Protection Bureau analysis of 500 marketing deals between colleges and large banks found no prohibition of monthly maintenance fees, out-of-network ATM fees or overdraft fees in many agreements. Students, as a result, remain vulnerable to charges that reduce money needed for food, books and other college expenses, the report said.

The findings are especially troubling in light of research suggesting that even small financial shocks can derail low-income students from completing a college degree, diminishing their earnings potential and putting those with student loans at risk of default.

For years, colleges have outsourced the processing of credit balances to banks and other financial firms in exchange for millions of dollars in contracts. Roughly 10 million students are enrolled in schools that have these sorts of agreements, according to the CFPB. Advocacy groups found that some banks charged a host of fees that cut into the Pell grants and federal student loan money dispensed on the so-called campus cards. The new rules forced schools to provide students a list of account options to receive excess tuition funds, with each option presented in a neutral way.

But the overdraft ban does not extend to other types of campus cards. A number of schools let financial firms use their logo or place checking or prepaid account feature on student IDs. Colleges promote these hybrid cards as a convenient way for students to manage funds, but the terms of the accounts aren’t always transparent. And even if they are, the CFPB said fees attached to the accounts can pose problems for students.

Nearly one in 10 consumers with student accounts incur 10 or more overdrafts per year, paying on average $196 in fees, according to the report. PNC Bank, which has over 20 agreements with colleges across the country, charges $36 for overdrawing an account.

Colleges and universities contend that the money they receive from financial partners helps keep the doors open, especially as states have trimmed their education budgets. Schools have been known to use revenue from these deals to fund scholarships or otherwise lower the cost of attendance, but regulators and advocacy groups worry that they are doing so at the expense of some students.

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