'Campus card' agreements may dip into student aid

Consumer advocates: Fees, lack of transparency put students at risk

Colleges and universities are moving toward partnerships with debit and prepaid card companies as a means to better distribute student aid, but fees associated with those cards can cut into students' funds, reports the Washington Post's Danielle Douglas-Gabriel.

The shift follows a transition away from agreements between schools and credit card companies allowing the latter to market on campus in exchange for a portion of the proceeds.

Credit card decline

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in 2009 required parental consent or a co-signer for students younger than 21 signing a card contracts and for schools to submit their contracts with card companies to regulators.

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From 2009 to 2013, the number of college-credit card deals fell by 57% and the number of open accounts at year-end dropped 53%.

Alumni associations are still partnering with the credit card companies—accounting for approximately half of the total school deals. The associations market to graduates, urging them to sign up for a school-affiliated card, which is lucrative for the college. In 2013, Penn State Alumni Association earned $2.8 million for its partnership with Bank of America's FIA Card Services.

Enter 'campus cards'

Today, 11% of colleges and universities promote debit and prepaid cards not subject to CARD Act regulations to students, according to the General Accountability Office (GAO).

The cards gained popularity with schools partially because they are a simple way to return credit balance when an individual's financial aid is greater than what they owe to the school. Often, the process of disbursing the money is also handled by the card financial partners.

Increasing efficiency in admissions and financial aid offices

The issue, Douglas-Gabriel says, is that fees cut into the aid. According to GAO, some are comparable to those at a bank, but others are unique to the agreements—such as a fee for using a PIN number instead of a signature when checking out. Because certain companies refused to disclose data, GAO researchers were unable to determine total fees charged.

"Students work hard to get themselves through college, and federal student aid is intended to help them do just that. Their financial aid should go towards the cost of college, not to banks through unjust and often hidden fees," says Sen. Tom Harkin (D-Iowa).

They remain, however, lucrative for schools. Campus card agreements are not public, but in 2012 U.S. Public Interest Research Group Education Fund obtained an agreement between Huntington Bank and Ohio State University (OSU) awarding $25 million over 15 years in payments to OSU and an additional $100 million in investment and lending.

Regulation attempts

In February, a Department of Education panel reviewed the issue but did not agree on any reforms, and in May, 65 congressional Democrats introduced a bill to end the school-card agreements, but it did not advance far. 

The lack of transparency surrounding college campus and credit card agreement is a major issue, Douglas-Gabriel writes. The Consumer Finance Protection Bureau (CFPB) looked at agreements involving 35 schools—80% of which made their agreements difficult to obtain (Douglas-Gabriel, Washington Post, 12/16; Douglas-Gabriel, Washington Post, 5/27).

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