|New Rules for College Campus-Sponsored Debit and Prepaid
The Department of Education has issued new rules for
campus-sponsored debit and prepaid credit cards that are directly linked to
financial aid disbursements. While many financial institutions have
partnerships with colleges to market these products as financial aid tools,
consumer groups argue that they sometimes come at a high cost to students. As a
result, the Department of Education issued rules to take effect in July that
offer protections to students using these types of products.
What are college campus-sponsored debit and prepaid
Once tuition and fees are paid, many students receive the
remainder of their financial aid through disbursements to campus-sponsored
debit and prepaid credit cards. Campus-sponsored debit cards can be reloaded
with funds and used to pay for expenses such as textbooks and rent. Conversely,
prepaid cards hold a predetermined amount of money, allowing students to spend
only the amount that has been allocated to the card.
Why are these new rules so important?
It's estimated that nearly $25 billion in federal student
aid funds is disbursed to students via these types of products (Source: U.S.
Department of Education Press Release, October 2015). Students often use these
funds to help pay for incidental education-related expenses such as food,
housing, books, and supplies. If a debit or prepaid credit card has excessive
charges and high fees, it can end up significantly cutting into a student's
financial aid funds.
So, what's changing?
The rules offer a variety of protections, such as:
- Allowing students to have a choice in how they receive
their federal financial aid disbursements
- Giving students objective and neutral information about
their financial aid disbursement options
- Requiring institutions to ensure that students are not
charged excessive fees (e.g., overdraft and transaction-swipe fees) when they
select campus-sponsored financial products
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