The crisis over credit card use by college students appears to be under control, but another problem with plastic is causing concern.
This time it’s debit and prepaid cards and once again, colleges and universities are being criticized for helping promote the problem.
A 2013 survey showed 77 percent of college students using debit cards and only 30 percent using credit cards. Nearly 900 schools – most of them large public universities and community colleges – have partnerships with debit and prepaid card providers that promote use of their cards to pay student expenses.
The schools negotiate individual agreements with card providers and in most cases, receive money or services from the banks or financial institutions for helping promote the product. For example, Ohio State University signed a 15-year, $25 million agreement with Huntington Bank that included $100 million in lending and investment.
Too Many Transaction Fees
Students, on the other hand, get dinged with fees ranging from 50 cents to $2.50 every time they swipe the debit card for a transaction. They also have to pay overdraft fees of up to $38 and even get charged $10 for inactivity fees if they don’t use the card for six months.
Research by the Public Information Research Group (PIRG) showed that 32 of the 50 largest public 4-year universities, 26 of the largest 50 community colleges, and 6 of the largest 20 private not-for-profit schools have debit or prepaid card contracts with a bank or financial firm.
“Outsourcing financial activities or signing contracts with banks to issue college-branded cards should only be done if the students benefit and certainly not if the college avoids administrative costs only by dumping high-fee cards on its students,” Ed Mierzwinski, consumer program director for PIRG, told Debt.org. “That is not a win for students.”
The situation is similar to the one that brought on the Credit Card Accountability, Responsibility and Disclosure (CARD) Act in 2009 that prohibited marketing on campuses and required colleges to publicly disclose any agreements with credit card companies. It also forced anyone under the age of 21 to have an adult co-signer on the card or be able to prove that the student had sufficient income to pay the bill.
Since that law was signed, credit card debt among college students has dropped dramatically. The average balance in 2008 was $3,173. It was $499 in 2013 and the number of students paying off the balance each month has tripled.
It also is significant that the number of colleges with credit card agreements dropped from 1,045 in 2009 to 336 in 2013.
Colleges Get Benefits
The major problem now, as it was then, is that students are unaware that their school is receiving a benefit for them using the debit card. Critics claim the options presented to students by the schools are often biased or misleading in favor of the school and card provider.
The Government Accounting Office (GAO) did a study on the matter and reported its findings to Congress and the Department of Education (DOE) in 2013. The GAO sent recommendations with their report, asking that card providers file easily accessible documentation of the terms of their agreements with schools and fees charged to students.
The DOE held hearings in 2014 with stakeholders to discuss rule changes, but the groups could not reach a consensus so nothing has been changed. There has been speculation that the DOE would announce rule changes sometime this spring.
Students Voice Concerns
Some of the contracts examined by the GAO called for schools to use “best efforts” to promote and encourage use of the provider’s card. The marketing often includes the school’s logo on the card along with a list of reasons why using the provider’s card “… makes everyday life easier on and off campus.”
Some students interviewed for the GAO study complained that if they didn’t select the card, they had to work through a multi-step process to view other options and each new page included more promotions for the provider’s card. Others said they worried that they would not get their federal money unless they accepted the debit card being promoted by the school.
Anne Gross, vice president for regulatory affairs for the National Association of College and University Business Officers (NACUBO), said schools are aware of the concerns and have taken steps to deal with them on their own.
“We really believe that electronic transfer of balances is the way to go,” Gross said. “It’s faster, cheaper and safer. We do think that schools keep the interests of the students first and foremost. Certainly the publicity on this matter has put that even more to the forefront of their minds.”
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- NA, (2014, February 13) College Debit Cards: Actions Needed to Address ATM Access, Student Choice, and Transparency. Retrieved from http://www.gao.gov/products/GAO-14-91
- Stratford, M. (2013, October 1) Warning on Debit Card Dangers. Retrieved from https://www.insidehighered.com/news/2013/10/01/consumer-bureau-issues-initial-findings-college-debit-card-deals
- NA, (2014, September 23) Credit card debt statistics. Retrieved from http://www.nasdaq.com/article/credit-card-debt-statistics-cm393820#ixzz3S2A6JrxR
- NA, (2014, December 15) CFPB Report Finds Continued Decline in College Credit Card Agreements. Retrieved from http://www.consumerfinance.gov/newsroom/cfpb-report-finds-continued-decline-in-college-credit-card-agreements/