College Credit 101

The Consumer Financial Protection Bureau is initiating an inquiry into the relationship between colleges, banks and debit card companies. One of the more egregious examples:

Preloaded debit cards have caught on in recent years as a method of giving college students access to federal grants and loans for living expenses. While they have come under scrutiny for high fees, they are a way to give money to students without using paper checks, and do not require a bank account. Critics say students would be better off opening a bank account than relying on preloaded cards. Higher One has dominated the debit card market for years, and has come in for much of the criticism for swipe fees, ATM fees and other charges that can chip away at students’ financial aid. As the cards have grown more popular, other banks, including Sallie Mae, have entered the market place.

Kay Steiger argues the practice is “obviously predatory in a lot of ways”:

Though my alma matter, the University of Minnesota, didn’t go quite so far as to use our student ID cards as ATM cards, they did fold in an application to open an account with TCM Bank along with the forms I was supposed to fill out for my student ID. Though it’s not necessarily bad to encourage student to open bank accounts, it did leave me with the impression that I wouldn’t get my ID card unless I signed up with this preferred bank. Of course in retrospect this seems crazy, but as an impressionable 18-year-old college student, it’s easy to see how manipulative marketing financial products can be when they appear to be endorsed by the college.