The Department of Education has issued new rules for campus-sponsored debit and prepaid credit cards that are directly linked to financial aid disbursements. While many financial institutions have partnerships with colleges to market these products as financial aid tools, consumer groups argue that they sometimes come at a high cost to students. As a result, the Department of Education issued rules to take effect in July that offer protections to students using these types of products.
What are college campus-sponsored debit and prepaid credit cards?
Once tuition and fees are paid, many students receive the remainder of their financial aid through disbursements to campus-sponsored debit and prepaid credit cards. Campus-sponsored debit cards can be reloaded with funds and used to pay for expenses such as textbooks and rent. Conversely, prepaid cards hold a predetermined amount of money, allowing students to spend only the amount that has been allocated to the card.
Why are these new rules so important?
It’s estimated that nearly $25 billion in federal student aid funds is disbursed to students via these types of products (Source: U.S. Department of Education Press Release, October 2015). Students often use these funds to help pay for incidental education-related expenses such as food, housing, books, and supplies. If a debit or prepaid credit card has excessive charges and high fees, it can end up significantly cutting into a student’s financial aid funds.
So, what’s changing?
The rules offer a variety of protections, such as:
- Allowing students to have a choice in how they receive their federal financial aid disbursements
- Giving students objective and neutral information about their financial aid disbursement options
- Requiring institutions to ensure that students are not charged excessive fees (e.g., overdraft and transaction-swipe fees) when they select campus-sponsored financial products
If you have questions, contact the experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Disclosures: The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
