Congress Wants More Bang for Student Debit Card Bucks
NEW YORK (MainStreet) In the run-up to Senate hearings on the Department of Education's budget request set for next week, a group of three senators and 20 members of the House of Representatives sent a letter to ED Secretary Arnie Duncan supporting changes to the department's cash management system for funds from the Higher Education Act. The Act is the wellspring for nearly all federal student aid and is currently under revision.
Duncan is expected to testify next Wednesday. The senators included Tom Harkin (D-Iowa), chair of the Senate Health, Education, Labor and Pensions Committee (HELP); Dick Durbin (D-Ill.); and Elizabeth Warren (D-Mass.).
The letter wants protection from unfair banking practices, including campus-sponsored debit cards that have fee-gouging terms and threaten the integrity of student aid programs.
"Federal financial aid is there to help students," the legislators wrote. "When colleges partner with financial institutions and push students into putting their federal student aid funds into high-fee accounts, it puts our federal investment at risk. Students should be able to make unbiased choices about the financial products that work best for them."
The Government Accountability Office and ED's Inspector General have already raised concerns that colleges are collaborating with debit card issuers that charge hidden fees, resulting in profits for those companies and financial stress for studentswhile the card issuers are exploiting the college or university's brand.
"Colleges should be recommending the financial products that provide the best deal to students," the letter stated, "not the biggest financial reward for the institution."
The members specifically urged Secretary Duncan to establish rules to ensure that students can easily deposit financial aid into their personal accounts without penalty or delay.
The letter asked that colleges be prevented from forming revenue sharing deals with card issuers, where colleges profit at the expense of their own students.
Colleges would also be required to post agreements with banks and card issuers on their Websites and annually report them to the government for review by relevant agencies, such as the Consumer Financial Protection Bureau. These rules would be applicable to any college-sponsored account into which Title IV funds are transferred or deposited.
It was not clear how these legislators would react if the debit card demands were not met--or what impact that would have on the budget.
Separately, the Department of Education has been looking into debit cards through its 33-member Program and Rule Making Committee, although new eligibility requirements for federal PLUS loans seems to have received the bulk of the attention thus far.
--Written by John Sandman for MainStreet