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GAO Report Highlights Troubling Practices at Schools Offering Campus Debit and Prepaid Cards; Harkin and Miller Urge Action to Protect Students

Lawmakers say regulations needed to address growing use of agreements between schools and financial institutions to disburse federal financial aid

WASHINGTON, D.C.— Today, Senator Tom Harkin (D-IA) and Congressman George Miller (D-CA) called for action to better protect students and increase transparency around debit and prepaid card agreements between schools and financial firms.  The lawmakers’ action follows the release of a Government Accountability Office (GAO) report today that confirms a number of alarming practices that occur when colleges partner with financial institutions to market debit cards to students.  Harkin chairs the Senate Health, Education, Labor, and Pensions (HELP) Committee, while Miller is the senior Democrat on the House Education and the Workforce Committee.

“Students and their families often scrimp and save—including applying for numerous scholarships, loan, and grant programs—just to afford a semester at college,” said Harkin.  “While efficiencies in the disbursement of federal student aid, such as debit cards, offer a number of advantages for students and schools alike, there is no excuse for federal aid to be lining the pockets of financial institutions.

“Equally troubling, this report reveals that many schools are providing a startling lack of transparency to students and their families when it comes to the agreements they have with financial institutions,” Harkin continued.  “These agreements look far too similar to the student loan and credit card abuses we cracked down on in the past.  When students receive federal student aid, it is critical that they receive what they are promised.  It’s particularly egregious that these fees are also eating into student loan funds that students are required to pay back with interest.  I strongly encourage the Department of Education to swiftly address the concerns raised in this report through regulation and I also look forward to working with Congressman Miller on any legislative changes that may be needed to fully protect students as we consider the reauthorization of the Higher Education Act.”

“Banks and financial institutions have long sought to forge partnerships with colleges and universities as a way to gain access to young consumers,” said Miller. “In the past few years, millions of students have been misled into taking out credit cards and student loans that are needlessly expensive, in many cases based on the recommendation of their college. Congress curbed aggressive and lucrative marketing on these products, but financial institutions are now back on campus. They are pushing debit cards arrangements that are once again great for banks and great for colleges, but can be terrible for students. These arrangements often leave students who are already coping with rising education costs even deeper in debt. The Department of Education must restore integrity within the financial aid system by ending aggressive marketing tactics used by banks and reining in fees that unnecessarily drive up college costs.” 

A growing number of students are relying on campus debit and prepaid cards to receive their federal financial aid disbursements.  According to the report, 40 percent of students nationwide attend a college that contracts with banks or financial firms to market campus debit cards.  Amidst rising concerns about the cost of these cards to students and the lack of transparency around schools’ incentives to enter these agreements, including a 2012 U.S. Public Interest Research Group report, Senator Harkin requested that GAO examine the increased use of campus debit cards, fees incurred by students when using the cards, and current consumer protections in place.  GAO’s report shows that students using campus debit and prepaid cards to access their federal financial aid disbursements are subject to high fees and do not have the same consumer protections for students as other traditional bank products.  In particular, the GAO report finds that students may be confronted with inadequate access to ATMs, resulting in additional fees of up to $6 per transaction when a student accesses these funds.

Equally alarming, the GAO report also found that revenue sharing agreements between schools and debit card providers can motivate schools to encourage students to sign up for campus debit cards over using more traditional fee-free banking methods.  Despite previous requests from the U.S. Department of Education and the Consumer Financial Protection Bureau for financial institutions and schools to make these card agreements publicly available, the report highlighted that very few are currently doing so.

The full GAO report can be accessed here.