The U.S. Education Department is proposing to prevent colleges and universities from encouraging students who receive federal aid to open bank accounts offered by firms that have business ties with the school. Educational institutions instead would have to ensure that students are "not steered to, or compelled to select, a particular option" for receiving financial aid money.
Schools often encourage students to open accounts with a particular financial institution, sometimes through a debit card with the college's logo. Consumer and student groups say these arrangements, popular at state schools and community colleges, are too costly. Students use the accounts to receive their federal aid funds. More than 850 schools have such arrangements, a Government Accountability Office (GAO) study found; and some receive compensation from financial firms in exchange for using their cards.
The Education Department proposal would place new requirements on financial firms signing deals with schools. The agency gathered a panel of financial companies, colleges, and consumer groups to negotiate a compromise; but the government can still proceed with the proposal even without an agreement. The suggested plan would ban fees for account maintenance, ATM use, and overdrafts. Cards associated with students' accounts would no longer able to carry school logos. Colleges also would have to make sure it is easy for students to have financial aid deposited into bank accounts they already have. Schools already must offer other options besides new accounts, such as paper checks or direct deposit, but critics say some schools make it inconvenient to get financial-aid money in other ways.
The company Higher One Holdings Inc. has 57 percent of the market share for college-sponsored accounts, the GAO report said. Its practices have triggered some campus backlash, with students complaining of excessive fees -- including a $2.50 fee for using a non-Higher One ATM and a 50 cent fee for some debit transactions.