Advertisements aimed at promoting a particular financial institution’s debit and prepaid credit cards are a common sight on many college campuses today. While many financial institutions have partnerships with colleges to market these products, consumer groups argue that they sometimes come at a high cost to students. As a result, the Department of Education recently issued new rules designed to offer protections to students.
Why are the new rules so important? Once tuition and fees are paid, many students receive the remainder of their financial aid through disbursements to campus-sponsored financial products, such as debit and prepaid credit cards. In fact, it’s estimated that nearly $25 billion in federal student aid funds is disbursed to students using 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 cutting significantly into a student’s financial aid funds.
The new rules went into effect in July and apply only to campus-sponsored financial products that are directly linked to financial aid disbursements. The rules will 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
- Requiring financial institutions to publicly disclose contracts for campus-sponsored financial products
This article adapted with permission of Broadridge Forefield Investor Communications, Inc.