The student credit card trap
Good news: The Consumer Financial Protection Bureau is looking into how credit card companies and banks are entering the student credit and banking market. From Inside Higher Ed:
The bureau is asking for input on a few separate topics: preloaded debit cards supplied by companies like Higher One, which give students the money left over from grants and loans after paying tuition; arrangements between colleges and banks that allow student identification cards to be used as debit cards; and college-affiliated bank accounts.
College business officers say those products are quite different from one another. Preloaded debit cards have caught on in recent years as a method of giving college students access to federal grants and loans for living expenses. While they have come under scrutiny for high fees, they are a way to give money to students without using paper checks, and do not require a bank account. Critics say students would be better off opening a bank account than relying on preloaded cards.
Higher One has dominated the preloaded debit card market for years, and has come in for much of the criticism for swipe fees, ATM fees and other charges that can chip away at students’ financial aid. As the cards have grown more popular, other banks, including Sallie Mae, have entered the market place.
This is obviously predatory in a lot of ways. Students do get a good deal on loans, but they shouldn’t be taking out more than they need to just to spend on living expenses. Though my alma matter, the University of Minnesota, didn’t go quite so far as to use our student ID cards as ATM cards, they did fold in an application to open an account with TCF Bank* along with the forms I was supposed to fill out for my student ID. Though it’s not necessarily bad to encourage student to open bank accounts, it did leave me with the impression that I wouldn’t get my ID card unless I signed up with this preferred bank.
Of course in retrospect this seems crazy, but as an impressionable 18-year-old college student, it’s easy to see how manipulative marketing financial products can be when they appear to be endorsed by the college. It’s good to see that CFPB wants to bring the hammer down on these types of manipulative practices.