College and bank partnerships can be costly to students

By David ButlerConsumer Reports

Sending your kid off to college generates a never-ending to-do list of items large and small. But none of those tasks can compare with the most daunting job of all: Figuring out how to pay for school. Colleges and universities frequently offer students bank-backed financial products, and they might appear to be a plus for students. But they don't help the students' bottom line as much as they boost the schools’ budget. In return, the banks get a deep reservoir of potential new customers.

To help reach and enroll students in their products, banks have teamed up with colleges— through revenue-sharing deals and other questionable arrangements—to steer students toward co-branded debit or prepaid cards and checking accounts. Seeing a school’s logo attached to the product can give students the impression that the school recommends it, or that it’s the best choice for accessing financial aid. In a February 2014 report, the U.S. Government Accountability Office noted that 40 percent of students nationwide attend a college that contracts with banks or financial firms to market campus debit cards.

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Recent investigations have revealed that these risky products often come with unexpected costs. The GAO also found that students using campus debit and prepaid cards to access their federal financial aid disbursements are subject to unusual fees.

What's more, the cards might not offer the same consumer protections as other traditional bank accounts. Even more concerning is the fact that students could face a delay in accessing their federal financial aid if they choose not to use their college’s preferred bank partner.

Check our parents' guide to saving for college, and also learn how to pay for college and get a tax break, too.

Lawmakers in the House and the Senate have taken action to crack down on these practices and ensure that students are in control of their own financial aid and bank products.

Sen. Tom Harkin (D-Iowa) and Representative George Miller (D-Calif.) have introduced legislation that would restrict deals between colleges and banks, putting a stop to conflicts of interest and kickbacks between financial institutions and colleges while requiring schools to create a system that allows students to receive electronic deposits of their financial aid balances through the bank and/or product of their choice.

The new legislation, endorsed by Consumers Union, the policy and advocacy arm of Consumer Reports, also follows recommendations from the GAO and the Inspector General of the Department of Education and extends current protections that exist for marketing credit cards and private student loans on campus.

College is costly enough without the hidden fees students face just for accessing their money. That's why we're working to get relief for students and families already burdened with student loans, and to ensure that there are fairer options for the next generation of college students.

To learn more about our work on student financing and review our Seven Principles for Fair Student Lending, visit

This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

Read other installments of our Policy & Action feature.

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