Proposed Rule Limits Fees on Student Federal Aid Cards

May 18, 2015, Written By Bill Hardekopf
Pretty student standing showing her card to camera at the atmin college

The U.S. Department of Education is stepping in to prevent colleges from pushing students into receiving federal aid on costly prepaid debit cards. The Office of Postsecondary Education issued a notice of proposed rulemaking that could cost colleges millions of dollars in kickbacks from prepaid card providers.

According to the Department of Education, approximately nine million students attend schools that offer prepaid debit cards for federal aid disbursement. Those schools sent out an average of $25 billion in Pell Grants and Direct Loans to their students. Because financial aid prepaid cards often come with hefty fees for such things as withdrawals and balance inquiries, the government seeks to protect students by putting regulations on colleges and universities.

The new rules will put limits on the fees prepaid cards can charge. Some of these are standard across all prepaid cards, while others, like charging for PIN transactions instead of signature transactions, may be gouging students out of their aid money.

Despite the help the new proposal could provide for students, it may not be as effective as it seems. The proposed rule does not cover student ID cards, which double as prepaid debit cards at some schools. Recent research from the Center for Responsible Lending showed 11% of college students pay $710 in annual overdraft fees.

“What’s been banned for the financial aid disbursement channel is quite strong, but it’s not nearly as good and strong for the types of arrangements you can be exposed to outside of that channel,” said Chris Lindstrom of the U.S. Public Interest Research Group.

The information contained within this article was accurate as of May 18, 2015. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.