Financial literacy in the United States is clearly lacking right now, and what are our institutions of higher learning doing about it? Setting a terrible example and bleeding their most financially vulnerable students of much needed aid money, that’s all.
Don’t believe me? A new report from the US Public Interest Research Group (PIRG) confirms the dirty practice. The report, titled The Campus Debit Card Trap, revealed that while the federal government has long mailed students financial aid checks, nearly 900 colleges and universities have struck affinity partnerships with financial institutions in order to tie campus records to bank accounts, effectively turn student IDs into debit cards, and disperse aid to more than 9 million students through these cards. This might sound great in theory, but a closer looks reveals significant drawbacks to the supposed convenience the new system offers.
Aid money earmarked for tuition gets automatically deducted from students’ accounts, but when they go to spend the rest on books or living expenses, they may be exposed to a number of different fees, including $0.50 swipe fees for each purchase they make, a $25.00 wire transfer fee (which clearly deters students from moving funds to a checking account of their own choosing), overdraft fees of at least $38, and a $2.50 out-of-network ATM withdrawal fee (which is assessed in addition to the ATM owner’s surcharge – likely to be around $2.30). In other words, colleges and universities are picking students’ checking accounts for them, and the accounts they choose use prohibitive fees to prevent users from taking their business elsewhere.
The result is companies like HigherOne, which has partnerships with 520 colleges and universities and handles 12.5% of all federal aid, raking in 80% of its total revenue via fees for college aid disbursement cards. And while those orchestrating this system are quick to point out that these fees are no different than those anyone using a checking account may face, who are they to say that students cannot compare checking accounts in order to find better deals and save money?
According to the report, 40% of those receiving aid are first-generation college students and 25% also qualify as being “low-income.” They are likely inclined to trust their educators but are instead footing the bill for schools to get payouts and revenue sharing deals.
“Campus debit cards are wolves in sheep’s clothing. Students think they can access their dollars freely, but instead their aid is being eaten up in fees,” said Rich Williams, the higher education advocate for the US PIRG and co-author of the report, in a statement announcing its release. “Every penny of financial aid money should go to educational expenses, not an education in high bank fees.”
The question is therefore what to do about this obviously flawed system, and the US PIRG report offers a number of recommendations, including the need for increased oversight by the Consumer Financial Protection Bureau. The best approach is undoubtedly to give students options, educate them on how to go about choosing financial products, and allow them to decide for themselves how they’d like to receive financial aid. Not only would such an approach help them avoid fees in the short term, but it would also provide life lessons that would have a positive on future financial performance and the economy in general.
After all, isn’t it the duty of our institutions for higher learning to mold productive members of society and contribute to the common good, rather than adding to the extremely high costs that already contribute to widespread debt among young people and necessitate financial aid programs in the first place?