Credit/Debit Cards, Prepaid

GAO report highlights concerns in college debit, prepaid market

College DebitA GAO report released last week highlighted areas for concern regarding college debit cards, which the GAO found were provided by 11 percent of U.S. colleges and universities in 2013.

The data showed that most debit or prepaid college card offerings provided students the ability to receive their federal student aid and other payments on the card. Most schools were found to have outsourced the aid reimbursement and fund transfer process to their card providers.

According to the report, college cards can be convenient and cost-efficient for students and universities, but concerns remain when it comes to fees, ATM access and neutrality.

The GAO found that while fees charged by college debit and prepaid card providers were comparable with those for similar bank products, some fees were slightly higher than those charged by credit unions. Two large providers, however, charged fees for purchases using a PIN number, which is generally not a practice in the mainstream debit market.

“The GAO’s report confirms campus-related products offered by depository institutions are better deals for students than non-campus-related accounts, especially those products offered by non-banks,” Consumer Bankers Association President and CEO Richard Hunt said. “Arrangements with banks often benefit students and schools by offering reduced costs, convenience of use and valuable financial education.”

While officials at nine selected schools did not report significant issues with ATM machines, Department of Education rules require that college card providers ensure convenient access to fee-free ATMs or bank branches for students receiving federal aid payments. The agency has not yet specified, however, what practices ensure compliance with the guidelines.

The GAO also reported instances in which universities appeared to encourage students to enroll in a college card program instead of presenting neutral information about payment options.

“The financial marketplace functions best when consumers are fully informed and have unbiased information,” the report said. “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.”

In its recommendations, the GAO said Congress should consider rules requiring all providers of college debit and prepaid card services to file agreements for public review. The GAO also said the Department of Education should specify what constitutes convenient ATM access and develop rules for schools and card providers to present neutral information to students receiving federal student aid funds.

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