WASHINGTON (4/25/14)--The U.S. Department of Education should use its authority to prevent banks offering school-themed financial products to college students from charging high fees and aggressively marketing those products to students, a group of 23 senators said last week.
In a letter to Education Secretary Arne Duncan, Sen. Elizabeth Warren (D-Mass.) and co-signers noted that many colleges partner with banks to offer debit cards, prepaid cards or other products to students. The letter said student aid dollars in some cases may be diverted away from their intended purpose by high fees and high interest rates associated with these products.
According to the Consumer Financial Protection Bureau, there were 617 agreements between colleges and financial firms in 2012, with the firms paying colleges a combined $50 million. The agreements resulted in more than 1 million accounts being initiated.
The CFPB last September reported that details about college and university-sponsored accounts are often difficult to obtain. Consumers wanting details about these deals might only find them after filing requests under state open records laws.
The bureau called on financial institutions to be more transparent about commercial deals with colleges and universities. The U.S. Governmental Accountability Office has also reported on this issue.
"When colleges partner with financial institutions and push students into putting their federal student aid refunds 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. Colleges should be recommending the financial products that provide the best deal to students, not the biggest financial reward for the institution," the senators wrote.
They called on the Department of Education to:
- Ensure students can deposit aid into personal accounts without delay or penalty;
- Prohibit colleges from entering into agreements with banks or other firms to offer products that charge fees for the disbursement and use of Title IV student aid;
- Ensure students receive unbiased information about how to access federal student aid;
- Ban revenue sharing deals between colleges and financial institutions; and
- Require colleges to post financial agreements with banks on their websites, and to submit those agreements to relevant authorities for periodic review.
For the full letter, use the resource link.