The Departimages (1)ment of Edu­ca­tion has issued new rules for cam­pus-spon­sored deb­it and pre­paid cred­it cards that are direct­ly linked to finan­cial aid dis­burse­ments. While many finan­cial insti­tu­tions have part­ner­ships with col­leges to mar­ket these prod­ucts as finan­cial aid tools, con­sumer groups argue that they some­times come at a high cost to stu­dents. As a result, the Depart­ment of Edu­ca­tion issued rules to take effect in July that offer pro­tec­tions to stu­dents using these types of products.

 

What are col­lege cam­pus-spon­sored deb­it and pre­paid cred­it cards? 

Once tuition and fees are paid, many stu­dents receive the remain­der of their finan­cial aid through dis­burse­ments to cam­pus-spon­sored deb­it and pre­paid cred­it cards. Cam­pus-spon­sored deb­it cards can be reloaded with funds and used to pay for expens­es such as text­books and rent. Con­verse­ly, pre­paid cards hold a pre­de­ter­mined amount of mon­ey, allow­ing stu­dents to spend only the amount that has been allo­cat­ed to the card.

Why are these new rules so impor­tant?           

It’s esti­mat­ed that near­ly $25 bil­lion in fed­er­al stu­dent aid funds is dis­bursed to stu­dents via these types of prod­ucts (Source: U.S. Depart­ment of Edu­ca­tion Press Release, Octo­ber 2015). Stu­dents often use these funds to help pay for inci­den­tal edu­ca­tion-relat­ed expens­es such as food, hous­ing, books, and sup­plies. If a deb­it or pre­paid cred­it card has exces­sive charges and high fees, it can end up sig­nif­i­cant­ly cut­ting into a stu­den­t’s finan­cial aid funds.

So, what’s changing? 

The rules offer a vari­ety of pro­tec­tions, such as:

  • Allow­ing stu­dents to have a choice in how they receive their fed­er­al finan­cial aid disbursements
  • Giv­ing stu­dents objec­tive and neu­tral infor­ma­tion about their finan­cial aid dis­burse­ment options
  • Requir­ing insti­tu­tions to ensure that stu­dents are not charged exces­sive fees (e.g., over­draft and trans­ac­tion-swipe fees) when they select cam­pus-spon­sored finan­cial products.

Con­tent pro­vid­ed by:  Fore­field Advisors 

June 2016