The Obama administration issued new rules to curb high fees and sneaky practices in the student loan prepaid and debit card world. The cards may seem like an easy way to deal with student loans, but other choices may cost you less.
The U.S. Department of Education (DOE) estimates that about 40 percent of all college students use these cards and nearly $25 billion in Pell Grant and Direct Loans get released to students through them.
The GAO found unreasonably high fees caused some to lose student aid. It also discovered that schools and financial institutions steered students into accounts that might not be in their best interests and it uncovered cozy relationships between schools and financial institutions, again not always in students’ best interests.
Education Secretary Arne Duncan said, “These regulations will help make sure student loan debt is affordable for all borrowers and bring overdue reforms to campus cards, a sector that too often puts taxpayer dollars and student consumers at risk.”
NEW RULES WILL:
- Require institutions to give students a greater choice about how to receive their financial aid.
- Prohibit schools from requiring students or parents to open accounts through specific institutions or banks.
- Require the financial institution to clarify fees and make sure that students don’t face excessive charges.
- Require schools and financial institutions to offer students a range of options about how they can get their money.
- Require institutions to point out that students and parents can use existing accounts to receive deposits.
Lauren Saunders, Associate Director of the National Consumer Law Center (NCLC), said, “These new rules will stop schools and prepaid card companies from using unfair and deceptive tactics to push students into using cards that are heavy on fees.”
While the new rules cover a lot, they don’t include prepaid and debit programs linked to students’ ID cards. The NCLC’s Saunders says, “Some campus card programs charge high overdraft fees on electronic transactions, unlike most prepaid card or checkless checking accounts.”
That problem may get solved by new rules under consideration by the Consumer Financial Protection Bureau (CFPB). Stay tuned.