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New Rules for College Campus-Sponsored Debit and Prepaid Credit Cards

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

Kenneth S. Rakes has 25 years of experience in public accounting and is a graduate of John Carroll University. Ken provides tax planning and preparation services for individuals, partnerships, corporations, estates, and trusts. Ken is a Personal Financial Specialist (PFS) providing retirement, estate, investment, insurance, and education planning for individual clients with an emphasis on the tax implications of planning decisions. Ken's other areas of expertise include: Manufacturing, Wholesale, Retail and Service Industries, Non-Profit Organizations and Sub-Chapter "S" Corporations.