The neediest college students who qualify for federal financial aid and receive that money on a debit card are being charged fees some call predatory: 50 cents per debit card purchase using a personal identification number, $10 a month for an inactive account, $20 for a replacement card.
Those fees are under scrutiny — some say unfairly, including Wittenberg University — for siphoning students’ limited financial aid dollars and adding to their already high debt burdens, according to the U.S. Public Interest Research Group, which advocates for lower student debt. Americans already owe more than $1 trillion in student loans.
Wittenberg is one of seven Ohio schools to use the largest player in the industry, Higher One, which charges its users the fees.
Students are often a captive audience to aggressive marketing practices, according to US PIRG. And they are not always the most financially sophisticated, with little idea where to turn when they rack up fees, said U.S. Sen. Sherrod Brown, D-Ohio, who is urging industry change.
“These kids have too much debt anyway. We shouldn’t put them at more of a disadvantage when they graduate by allowing these companies to prey on them,” said Brown, who chairs the Senate Banking Subcommittee on Financial Institutions and Consumer Protection and was an original co-sponsor of the Credit Card Accountability Responsibility and Disclosure Act. “And prey is the right word.”
Higher One has agreements with 520 campuses that enroll more than 4.3 million students. In all, more than 9 million students — about 42 percent of all students nationwide — attend the 900 colleges that have card agreements with financial firms or banks, including US Bank and Wells Fargo, according to US PIRG.
“There’s nothing illegal here, it looks like it’s just greed and less-than-desirable business practices,” said Brown, who recently sent a letter to Higher One urging the New Haven, Conn.-based company to change its practices, which he called “outrageous.”
Firm to pay $11M fine
Higher One was hit in August with federal fines and ordered to pay $11 million to about 60,000 students for unfair fees, according to the Federal Deposit Insurance Corporation. Last year, the company made 80 percent of its $142.5 million in revenue through fees, according to US PIRG.
But the company says its basic account is designed to be free, and information is available to students on how to avoid fees. Students can close their account, for instance, to avoid paying the $10 a month fee for accounts that have had no transactions for more than six months.
Higher One and the only local school using the company, Wittenberg University, also say the report published by US PIRG contained inaccuracies.
“When it comes to the $1 trillion in student debt and actually doing something to help students manage their money wisely in today’s banking climate, we are not part of the problem. We’re part of the solution,” said Higher One spokeswoman Shoba Lemoine.
Wittenberg, with about 1,750 students, said about two-thirds of students receive either financial aid, refunds or pay from their on-campus job through the company. Students have the choice to receive money on their Higher One-run student identification card or to their own bank account, said Doug Schantz, director of the office of student accounts. Schantz said he has had a Higher One account for five years and never incurred a fee.
“Just like with any other banking institution you would talk to, there are fees with different services,” he said. “It’s nothing that’s really out of the ordinary.”
Until the private university entered into an agreement with Higher One five years ago, the university paid students and offered refunds by paper check, he said. Direct pay to an account is more secure, and Higher One has an ATM in the student center, he said.
Tyler Hall, a Fairfield native who graduated from Wittenberg in May, said he used his Higher One account heavily during his undergraduate career to receive pay for several on-campus jobs.
“I didn’t necessarily see a huge issue with any fees,” he said.
Higher One at 7 Ohio schools
Along with Wittenberg, Higher One has agreements with: Kent State, Cleveland State and Shawnee State universities, University of Findlay, and Owens and Stark State community colleges, according to Brown’s office. Nine other Ohio schools allow students to receive their financial aid on debit cards through other firms, Brown said.
Cedarville University’s student cards are associated with Fifth Third Bank, the only bank on campus. Cedarville, a private school with 3,200 undergraduates, chose Fifth Third because students can continue their relationship with the bank after they graduate, including for home loans or car loans, said Mark Biddinger, director of accounting services at Cedarville.
“My biggest concern with Higher One was just that they look at students as a four-year revenue streams, and after that they really don’t have much opportunity to have business with that student,” Biddinger said. Higher One was one of three firms Cedarville considered.
Students do not face fees with Fifth Third, Biddinger said. For example, there is no fee for debit card purchases.
By using Fifth Third, Cedarville is writing 2,500 fewer checks, savings about $100,000 in time and resources. Cedarville did not receive money from Fifth Third for the new agreement. Some banks, however, do pay universities.
Ohio State University is receiving $25 million from Huntington Bank for the company to be the only bank on campus. Huntington is also investing $100 million in Columbus neighborhoods as part of the deal, according to US PIRG.
In the debit card industry, little has changed since US PIRG published its report on fees in May, said Rich Williams, higher education advocate for US PIRG.
Students still receive their debit cards before they arrive on campus, which Williams said gives the impression that is the only option. Students must wait two to three days to set up direct deposit to another account, or sometimes two weeks to receive a paper check, he said.
“There’s no incentive for banks to change,” he said.
Williams said banks target college students because they are cheaper to sign up for services since they do not have pre-existing accounts. He added colleges are finding administrative savings by having the financial firms manage financial aid money.
“What happens is that the cost that the school used to pay to distribute that financial aid money is passed onto the students and multiplied several time,” he said.
The average student pays $49 in fees annually, he said. Higher One’s new “Edge” account, which charges students $4.95 monthly so they can avoid all other fees, amounts to an annual cost of nearly $60.
Williams said Higher One did eliminate a lack of documentation fee, which was the U.S. Department of Education said could not be charged. But the company added a new $25 an hour research fee to research transaction activity or the history of an account, including statement balancing, according to Higher One’s website.
“We don’t really know what it means. But clearly students are no better off than when the report was released,” Williams said.
Brown asked Higher One voluntarily to adopt reforms that have already been made to credit cards. He said students should not be pressured into using a debit card, and they must fully understand the terms.
“We don’t want to do anything legislatively — we don’t want to have to do that. So we sent a letter to Higher One asking them to behave better,” Brown said. “We hope they will make some changes and set a better tone for the industry as a whole.”
Sample of fees
Non-Higher One ATM transactions: Domestic $2.50, international $5.
Insufficient or uncollected funds: $29 for first item, $38 for additional items.
Delinquent account fee: $50 for account that has been overdrawn for 45 consecutive days and for $5 or more.
Account research fee: $25 per hour for the company to conduct research regarding transaction activity or history on an account. May include statement balancing.
Source: Higher One