College Debit Cards: Actions Needed to Address ATM Access, Student Choice, and Transparency
What GAO Found
At least 852 schools, or 11 percent of U.S. colleges and universities, had agreements to provide debit or prepaid card services to their students as of July 2013, and most offered students the ability to receive federal student aid and other payments on a card. These schools were disproportionately large; their enrollments constituted about 40 percent of all postsecondary students. However, the percentage of students enrolled in their schools' college card programs was unknown. In the majority of agreements, the schools also outsourced to their card provider the process for paying financial aid and other funds via college cards and other methods. Some schools also used college cards as student identification. The dominant provider was Higher One, a nonbank financial firm that had a 57 percent market share in 2013, as measured by number of card agreements.
Benefits of college cards can include convenience for students and cost savings and efficiencies for schools, but concerns exist in a number of areas:
- Fees. GAO found that fees charged by college card providers generally were comparable with those for similar products provided by banks, although some college card fees were slightly higher than those of credit unions. However, two large providers charged a fee for card purchases using a personal identification number (PIN) rather than a signature—a fee mainstream debit cards typically do not charge. The total fees students pay are not known, and some providers declined or said they were unable to provide these data to GAO. In 2012, Higher One settled with the Federal Deposit Insurance Corporation, which alleged unfair and deceptive practices that resulted in consumers paying higher fees.
- ATM access. Officials at nine selected schools generally did not report significant issues with the availability of fee-free automated teller machines (ATM) on campus. Although Department of Education regulations for college cards require that schools ensure “convenient access” to fee-free ATMs or bank branches for students receiving federal student aid payments, the agency has not specified what constitutes this level of access. The lack of a more specific definition may make avoiding unnecessary fees difficult for students when making cash withdrawals of federal aid.
- Neutrality. GAO found instances in which schools or card providers appeared to encourage students to enroll in a college card rather than present neutral information about payment options. The financial marketplace functions best when consumers are fully informed and have unbiased information. However, schools may have incentives to influence student choice because some receive payments from card providers based on the number of card accounts or transactions, leading some consumer advocates to question whether schools always act in their students' best interests. Furthermore, the contracts between schools and card providers are not publicly available and data on these cards are limited, in contrast to another college-related product—affinity credit cards bearing the institution's name or logo—for which key information must be disclosed. Increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest.
Why GAO Did This Study
A growing number of colleges and universities have entered into agreements with financial firms to provide debit and prepaid card services for students. As the number of agreements has grown, questions have arisen over fees and issues such as student choice. This report examines (1) the functions of college cards and the characteristics of schools and card providers offering the cards; and (2) benefits and concerns regarding these cards. GAO reviewed relevant federal laws and regulations, developed a tally of card agreements by reviewing industry reports and school and provider websites, and analyzed data and interviewed officials from federal agencies, banks and other financial firms, students, and industry and consumer groups. GAO selected nine schools (which vary by program length and sector) for extended interviews and data collection.
Congress should consider requiring that financial firms providing debit and prepaid card services to colleges file their agreements for public review and provide other relevant information. The Department of Education should (1) specify what constitutes convenient access to ATMs or bank branch offices for students receiving federal student aid funds and (2) develop requirements for schools and card providers to present neutral information to students about their options for receiving federal student aid funds. The Bureau of Consumer Financial Protection agreed with GAO's matter for Congress. Education agreed with GAO's recommendations to it and said it will address these issues in an upcoming process to develop new rules.
Matter for Congressional Consideration
|To help ensure a comprehensive understanding of the agreements between colleges and debit and prepaid card providers, Congress should consider requiring that providers file these agreements with the Bureau of Consumer Financial Protection (CFPB) for public review, and provide other relevant information, such as payments between schools and the providers and fees charged to students, and that Education provide reasonably prominent notice of the availability of such information.||The substance of this Matter for Congress has been implemented without legislation through actions by the Department of Education. Per final Program Integrity & Improvement regulations published in the Federal Register on October 30, 2015, the Department of Education issued new requirements to disclose contracts with entities that (1) offer financial accounts that are directly marketed to students or (2) process Title IV payments on behalf of the school and either offer a financial account or directly market an account to students. As of September 1, 2016, schools were required to publicly disclose any contract with a financial account provider that provides Title IV credit balances to students and report the URL of those contracts to the Secretary of Education to include in a centralized database, per Education's electronic announcement dated July 1, 2016. Further, schools were instructed to post on their websites no later than September 1, 2017, information on the payments and benefits received by the school; the number of student account holders under each contract; and the mean and median fees assessed the account holders. On September 30, 2016, Education announced the public availability of this centralized database.|
Recommendations for Executive Action
|Department of Education||To help ensure that students can make an objective choice about whether to use a college card selected by their schools and have free and convenient access to federal student aid funds, the Secretary of Education should, in consultation with CFPB, develop requirements that schools and college card providers present students with objective and neutral information on their options for receiving federal student aid payments.||
The Department of Education released final regulations for college debit cards in October 2015. These included a requirement for schools to provide a list of account options from which a student may choose to receive federal student aid payments, where each option is presented in a neutral manner and the student's preexisting bank account is listed as the first and most prominent option.
|Department of Education||To help ensure that students can make an objective choice about whether to use a college card selected by their schools and have free and convenient access to federal student aid funds, the Secretary of Education should provide a specific definition for what constitutes convenient access to ATMs or branch offices of debit and prepaid card providers where students will not incur costs in making cash withdrawals of federal student aid.||
The Department of Education released final regulations for college debit cards in October 2015. These include more detailed requirements for schools with debit card agreements to ensure that students have convenient access to their federal student aid funds, including convenient access to a surcharge-free regional or national ATM network. Those ATMs must be sufficient in number and housed and serviced such that the funds are reasonably available to the accountholder, including at times when financial aid payments are deposited.