On Friday, the Department of Education released a draft regulation that offers new protections to students who rely on financial aid to pay for expenses after tuition, such as books, rent, and groceries. Currently, banks and financial firms partner with colleges and universities to disburse the remaining balance on students’ financial aid after tuition is taken out. These banks and financial firms pay out this balance through debit cards and pre-paid cards, which charge exorbitant and unusual fees, such as inactivity fees, point-of-sale fees that charge up to $0.50 per transaction, and high overdraft fees. Some students face up to $500 in fees per year.
In April, students with the Student Labor Action Project and the U.S. Student Association met with officials at the Department of Education to tell their stories about their negative experiences with third-party financial firms, particularly Higher One, which faced a class action lawsuit for predatory marketing practices. When meeting with the Department of Education, Mayra Guizar, a first-generation college student at Western Washington University, said that when she was surprised that her university would partner with a financial firm that charged her $0.50 each time she made a purchase. She said to the Department officials that after unsuccessfully trying to close her account and then transferring her financial aid to another bank account, “I found out I had an overdraft fee with Higher One, and when I logged in to figure out what was going on, I found that that I was -$200 due to inactivity fees and I had to pay it off as soon as possible or these fees would continue to accumulate.” Stories like Mayra’s are not isolated. Financial aid disbursers like Higher One affect 9 million financial aid recipients who collectively receive $25 billion in grants and loans per year.
In addition to eliminating fees, the draft regulation requires all agreements between financial firms and higher education institutions to be made public. In Spring 2014, students on over a dozen campuses requested agreements between their colleges and financial firms. Only one campus administration released its agreement, highlighting the pervasive lack of transparency in the sector.
Charging high fees netted Higher One, the financial firm with majority share in the campus banking market, $12.1 million in profit in 2012. Since 2012, Higher One has spent $1.2 million on lobbying to stop these regulations from taking effect. Financial industry lobbyists, such as Richard Hunt of the Consumer Bankers Association, have spoken about the need to defend fees and preserve the opacity of agreements between banks and universities. Today, with the publication of the draft regulation, students’ courage to tell their stories about abuses of the campus banking market have trumped the financial industries’ moneyed attempts to stop these new protections for financial aid recipients.
If you have had problems with third-party financial aid disbursers, please leave a comment below. The Department of Education needs to hear from you to put this regulation over the top!