Proposed Rule Limits Fees on Student Federal Aid Cards

Proposed Rule Limits Fees on Student Federal Aid Cards

May 18, 2015         Written By Bill Hardekopf

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.


bill-hardekopf

About Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.
View all posts by Bill Hardekopf
Featured Limited/No Credit
Top Features : No annual fee; reports to major credit bureaus; access to higher credit line after making first 5 monthly payments on time
Featured Fair Credit Card
Top Features : No annual fee; access to higher credit line after making first 5 monthly payments on time
Featured Low Interest Card
Top Features : 1.25X miles on every purchase; no annual fee; bonus of 20,000 miles once $1,000 is spent in first 3 months
Featured Cash Back Card
Top Features : 1.5% cash back on all purchases; $150 bonus after spending $500 in first 3 months
Featured No Annual Fee Card
Top Features : Earn cash back TWICE. 1% when you buy plus 1% as you pay; 0% APR for 18 months on balance transfers
Featured Bad Credit Card
Top Features : Perfect credit not required; Reports to major credit bureaus