Why A Student ID Shouldn't Double As A Credit Card
June 12 2014
Sen. Al Franken, D-Minn., accompanied by fellow Democrat senators, speaks during a news conference on Capitol Hill in Washington, Wednesday, June 11, 2014, where they talked about student loan legislation. From left are, Franken, Senate Budget Committee Chair Sen. Patty Murray, D-Wash., Senate Majority Whip Richard Durbin of Ill. and Sen. Chales Schumer, D-N.Y.
By: Daniel Ulloa
Legislation recently introduced in the House and the Senate stops colleges from allowing banks to aggressively market their products to students that leaves them severely in debt.
In addition, previously made agreements allowing the practice would need to be publicly disclosed. The Department of Education would also establish a program to analyze alternative methods of aid distribution than debit cards.
Colleges often receive financial benefits from the banks they allow promote financial products.
Banks often pay colleges fees so students sign up for a features where their student IDs function as debit cards. But, when students sign up for the cards, they are often not properly informed of the deal’s fine print which causes them to accumulate debt.
The deals often include excessive fees for inactive accounts and withdrawal fees up to $6 when there are few ATMS near campus. Such fees often are paid with federal student aid which in some cases students can only access through the banks’ credit card. Consumer advocates have criticized the lack of transparency in the agreements between the banks and the colleges, which allows both to profit at the expense of students.
Senators Elizabeth Warren (D-MA), Dick Durbin (D-IL) and Tom Harkin (D-IA) have introduced legislation known as the Protecting Aid for Students Act for 2014 in the Senate to address the problem.
“Students already face a mountain of debt. Colleges should not be allowed to push students toward debit cards and bank accounts with high fees that chip away at the money they need to pay for school,” Warren said.
In addition to the legislation, Harkin wants the Government Accountability Office (GAO) to further investigate the type of debit cards being marketed and possible violations of consumer protection law to address the matter.
In the House, the bill was introduced by Representatives George Miller (D-CA) and Maxine Waters (D-CA) as the Curbing Abusive Marketing Practices with University Student Debit Cards Act (CAMPUS) Debit Cards Act.
“Many of today’s college students are being strong-armed into using financial products that are endorsed by their university. These products often carry unnecessarily high fees that chip away at students’ federal grants and loans, which should be helping pay for classes, not lining the pockets of banks,” Miller said.
Legislative action regarding banks overcharging students was prompted by reports from both the GAO and the Consumer Financial Protection Bureau (CFPB) released in February.
According to the GAO, 40 percent of student currently attend colleges with agreements with financial institutions. In addition, it found that the credit cards issued as student IDs do not have same restrictions on interest rate as other debit cards.
The largest financial institution issuing cards to students, Higher One Holdings, is currently under investigation by the Federal Reserve Bank of Chicago for charging students to access their federal student aid.