Decline your college's debit card?
More colleges are partnering with banks to provide debit and prepaid cards -- some with hefty fees -- to students. A new report says students are paying too much while the colleges and financial firms make money.
Remember how credit card companies used to ply college students with free T-shirts to get them to sign up? Recall the unsavory student loan scandal? New rules were adopted because, many thought, students -- newbies to personal finance -- were like sitting ducks.
Now banks have another way to profit from college kids. A new study details how banks and other financial firms are issuing prepaid or debit cards in partnership with colleges and universities -- and both the financial and educational institutions are making money from the practice. (Post continues below.)The Public Interest Research Group study (.pdf file) says:
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.
College kids have long been carrying student IDs that double as prepaid cards to pay for school-affiliated activities. What's new is that these cards can now be used everywhere students go. At some schools, the cards are used to disburse financial aid -- meaning that students may end up paying to access that money.
The fees on these cards can be legion -- fees for swiping it, using an ATM, loading money onto the card, using a PIN, overdrawing an account, etc.
Some findings from the study:
- Thirty-two of the 50 largest public universities, 26 of the 50 biggest community colleges, and six of the 20 largest private universities have these deals, and 45% of U.S. college students attend schools where they exist.
- "The biggest firm in the business, Higher One, makes 80% of its revenues by siphoning fees from student aid disbursement cards, totaling $142.5 million of its $176.3 million total revenues in 2011, according to SEC filings. These fees include ATM and other transaction fees, overdraft fees, and interchange fees imposed on merchants who accept cards."
- The banks that do this -- Wells Fargo and U.S. Bank are the leaders -- are in it for something else: They're hoping to develop a lifelong, profitable relationship with young people.
- Schools are making money from this, often hundreds of thousands of dollars or more. One notable example: "A new contract between Ohio State University and Huntington Bank includes $25 million in payments to the school over 15 years," the report says. "It also includes an additional $100 million in lending and investment to neighborhoods surrounding campus."
- Students are likely not using due diligence when opting to use these cards. "Many students trust their schools and often think of co-branding as an endorsement. This causes many students to drop their guard, expecting their school has negotiated the best deal for them," the study says.
It's a jungle out there, so what's a student to do?
- You have a choice. Keep the bank you already have, if that suits you, and insist that the student aid money left over once the school takes its chunk is deposited into your checking account. Or find a bank in your new town with better terms than those offered with the college's card.
- Read the fine print before you sign up for anything. Just because you get the card in the mail before you leave for school doesn't mean you have to use it as a financial tool.
- Don't opt in for so-called overdraft protection. That just gives the bank the right to charge you large fees after it lets you overdraw your account. People in your age group pay more in overdraft fees than anyone else.
- Complain to anyone who will listen about unfair fees and terms. Some student protests have compelled a change of card terms. But keep in mind: A student at Catawba Valley Community College was banned from campus after he protested via Facebook.
U.S. Sen. Dick Durbin, D-Ill., and U.S. Rep. George Miller, D-Calif., have asked several federal agencies, including the Consumer Financial Protection Bureau, to examine these arrangements.
Is that appropriate?
We can see why financially strained colleges and universities are agreeing to these deals. Some so-called public universities now get an alarmingly low amount of state funding. But do these partnerships make you uncomfortable?
More from MSN Money:
I was going to say something snide about the interesting fact that Liberty University chose as its financial partner the Higher One - but having never heard of Higher One, I decided to look it up.
Interesting. According to the web site, it was founded by a Yale University junior and two other students in 2000 because they wanted to expand the purchasing power of their college IDs. Went public in 2010. An entrepreneurial success story. It is apparently successful because it provides services that people want.
Some people want a nanny state - some people want convenience. Convenience costs money.
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