An increasing number of banks are forming cozy relationships with colleges, which are not always in the best interests of students, according to a report released by US PIRG today.
The Washington-based student-advocacy group found nearly 900 campuses nationwide have affinity partnerships with financial institutions. There are 7,300 campuses participating in the federal financial-aid program. Outside banks are hired to set up student IDs and issue debit cards. In some cases, students receive their federal financial aid through the debit cards instead of by check.
While convenient for schools to outsource, as well as a source of revenue, PIRG says the arrangement can sock students with unwanted charges, including per-swipe fees of 50 cents, inactivity fees of $10 or more after six months, and overdraft fees of up to $38.
These financial companies also aggressively market other services to students to maximize these fees. PIRG contends the setup provides little choice to students and appears that the school is endorsing the banks practices. These relationships create at least the appearance of a conflict of interest, as schools may be tempted to choose the arrangement that gives them the most money rather than the arrangement that gives their students the best deal, said Rich Williams, the higher education advocate for US PIRG in a press statement.
“Every penny of financial-aid money should go to educational expenses, not an education in high bank fees,” said Williams.
Big players in campus financial services include Higher One, which has partnerships with 520 colleges that enroll 4.3 million students. PIRG notes that one in eight or 12.5 percent of all federal aid recipients nationally disburse their aid money into a Higher One account. The company makes 80 percent of its revenues from student-aid disbursement-cards fees, totaling $142.5 million of its $176.3 million total revenues in 2011, according to SEC filings cited in the PIRG report. Wells Fargo partners with 43 campuses that enroll more than 2 million students.
PIRG recommends colleges and policymakers take action to give students an unbiased choice of where to bank and eliminate fees charged to access financial aid.