In the guise of providing convenience to America’s college students, certain financial institutions have teamed up with almost 900 college campuses nationwide to link students’ national financial aid funds to debit cards. While these debit cards purportedly seem to make it easier for college students to access these funds, the students are unaware that these debit cards incur massive fees which are being deducted from their student aid amounts.

The Campus Debit Card Trap, a recent report released by the U.S Public Interest Research Group (“PRIG”) Education Fund, found that banks and financial firms now control or influence federal financial aid disbursements to over 9 millions students by linking checking accounts and prepaid debit cards to college student IDs. As a result, students are moving away from receiving their student aid funds by check and end up paying big fees on their student aid, including per-swipe fees of $0.50, inactivity fees of $10 or more after 6 months, and overdraft fees of up to $38 and more. “Campus id cards are wolves in sheep’s clothing,” observed Rich Williams, US PIRG Higher Education Advocate and report co-author. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

Since a lot of schools have experienced major cutbacks in state funding, the arrangement between the schools and the financial institutions bring in much needed money. These arrangements can also help a school reduce the cost of distributing financial aid to students by outsourcing that service. But these arrangements are not always in the best interests of the students. The biggest firm in the business, Higher One, makes 80% of its revenues from siphoning fees from student aid disbursement cards, totaling $142.5 million of its $176.3 million total revenues in 2011, according to SEC filings. In addition, according to the PIRG report, Huntington Bank paid $25 million to co-brand and link their checking accounts with Ohio State University student IDs. Other schools receive substantial payouts, revenue sharing deals, and large reductions in administrative costs.

Most egregious however, is that these deals, many of which are not publicly disclosed, often provide the students with little to no choice to participate, leaving them deeper in debt. The PIRG report found that financial institutions are aggressively marketing or defaulting students into their bank accounts to maximize these fees. Although students can opt of these programs and choose direct deposit or paper checks to receive their aid money, few do because these financial institutions make it incredibly burdensome to do so. For example, Higher One warns students that it will take extra days if they opt-out of the debit card option.

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Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.