When you think of financial aid, usually such things as your college financial aid office, the FAFSA and a university-based financial aid account come to mind.  However, did you know that over half of community and state colleges disburse financial aid money (loans, grants, etc.) in a different way?  It’s true; these schools join forces with outside institutions to provide financial aid debit cards to college students.  Sounds pretty handy, right?  Wrong.  According to new research, this method of providing aid is actually more troublesome and prone to increasing student debt.

While it’s convenient to have your financial aid funds literally at your fingertips, this method does behave a lot like a student loan in that fees can pile up over the years.  Put together all four of those years spent in undergrad, standard financial aid (i.e. federal loans) plus debit card, and you have yourself sitting atop the Everest of student debt.  And apparently, it just gets worse.

WHAT?!  HOW CAN IT GET WORSE?  I’M ALREADY BROKE!  Well, word is that students could avoid the hefty burden that these debit cards bring along, but various companies make it difficult for the purpose of reeling in more money.

One such company that currently stands in the limelight of this situation is called Higher One, which handles the debit card accounts.  Higher One partners with various universities around the country, offering to take some of the workload off of financial aid offices, which would normally be dealt the task of keeping track of and handing out student aid.  In fact, they actually give financial benefits to the school for making such a deal, essentially “paying for the privilege” of reaching future customers (college students like you!).  Think of it the same way you would the entertainment industry--sponsors, in an ever-more costly industry, offer various networks money in exchange for commercial airtime during specific programs/time slots.  Higher One, and other such financial institutions, exchange school benefits for control over student aid distribution and access to the next generation of bankers.

Fees for using financial aid debit cards add up very quickly, however.  One way this happens is by students using ATMs not designated for this type of card (or owned by Higher One).  Several other inconvenient and ultimately damaging fees stack up as well.  Students incur extra expenses through a $50 "lack of documentation fee" if they fail to submit certain paperwork.  They’re slapped with another $50 for having an overdrawn account, $10 each month if the account becomes inactive for 6 months, and 50 cents a pop for using a PIN in the store instead of paying via card + signature.

As many as one-fifth of college students in the U.S. (amounting to several million students) receive their aid this way and are forced to deal with the financial burden.  Some specific deals are...

  • University of Minnesota/TCF Bank.  TCF distributes all-purpose cards that act as student IDs, debit cards, security cards, etc.
  • Ohio State University/Huntington Bank.  Remember those perks that schools get for going this route?  OSU will get $25 million over the course of 15 years, AND $100 million in loans and investments for surrounding neighborhoods.

None of this is very good news to the average college family.  Rich Williams, one of the researchers in the interest group spearheading the study which revealed this upset, is absolutely baffled, saying, “For decades, student aid was distributed without fees...Now bank middlemen are making out like bandits using campus cards to siphon off millions of student aid dollars."

The good news is that you don’t have to go this way.  However, it’s a bit difficult.  Schools, as well as companies like Higher One and Wells-Fargo advertise these programs aggressively, and make getting paper checks or direct deposit for financial aid a headache.  They claim that your aid will take longer to receive if a check has to be printed and processed and might even charge a fee to get the check.

No matter what they tell you, make the best financial decision for YOU.  Financial aid is intended to help you, so keep a firm grasp on it.  Go Financial Aid will be here for you to lean on throughout all of your financial aid needs, providing sound solutions for your college future.

Categories: Financial Aid | Grants | Student Loans
Tags: financial aid financial aid debit card financial aid disbursement student loans

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