Some members of Congress are trying to stop banks and colleges from aggressively marketing debit cards as a way for college students to receive their financial aid. The use of debit cards isn’t itself problematic, but the cards carry high fees that can chip away at the student’s aid, and students often aren’t aware of these consequences.
Ten senators and a member of the House of Representatives (all Democrats) wrote a letter April 22 to Secretary of Education Arne Duncan in support of adding transparency to and eliminating fees from college debit cards tied to students’ financial aid. In the letter, posted to the website of Sen. Elizabeth Warren (D-Mass.), they call on Duncan to implement changes to the Education Department’s Title IV cash management rules that would ensure students get the best use of their financial aid.
The congressmen and congresswomen focused on two main issues: fees charged to students and relationships between financial institutions and colleges. The lack of transparency in these college-sponsored debit cards raises the concern that educational institutions are prioritizing the relationship between and potential profits from the banks, rather than focusing on what’s best for students.
Mitchell D. Weiss, a professor of finance at the University of Hartford and a Credit.com contributor, is not a fan of these debit cards.
“First of all, there’s this unrevealed relationship that exists between the colleges and the financial services companies, and the second issue has to do with the fees that these cards carry,” Weiss said. “The money on this card, to a certain extent, is at risk of being diminished. There’s a third area that’s not discussed that I’ve been jumping up and down about: Debit cards are inferior to credit cards as it pertains to consumer protection laws.”
Imagine someone steals and uses your debit card that carries all your financial aid money. You need that money to buy books and pay for living expenses while in college, but it’s gone. You should be able to get it back, but until you’ve settled the fraud claim with your card issuer, you’re out of the money you need. Debit cards also don’t help you build credit, Weiss pointed out, so if that’s one of the student’s priorities, he or she should make responsible use of a credit card, too.
These cards aren’t fundamentally bad, but as Weiss and the members of Congress argue, students need to know more about how they work. The congressmen and congresswomen want to eliminate fees on these cards and ban revenue-sharing deals between the financial institutions and colleges.
Meanwhile, these remain common products on college campuses, and if you have a school-sponsored debit card, make sure you understand the terms and are aware of potential fees you can incur by using them.
More on Student Loans:
- A Credit Guide for College Graduates
- How to Pay for College Without Building a Mountain of Debt
- Strategies for Paying Off Student Loan Debt