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Student Loan Debit Cards: Full of Fees

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It’s common practice for college students to take out loans larger than the amount of their tuition. Colleges are then required to refund that excess money so students can use the refund to pay for books and other school necessities, as well as rent or other living expenses.

Long lines of students waiting to receive their refund checks from the bursar’s office are a normal sight at the beginning of each semester, but a Connecticut-based financial services business known as Higher One is trying to change that once and for all. Higher One’s student loan debit cards have made their way onto the refund scene— with mixed reviews.

Students Urged to Activate Debit Cards Quickly

The Washington Post reports that this fall, over a million college students received plastic cards bearing the MasterCard logo and their school’s emblem, along with a welcome letter proclaiming “Meet your new best friend on campus!” Instructions on how to activate the card were also included, urging students to activate their new accounts quickly. The cards, issued by Higher One, are debit cards linked to the student’s excess financial aid money.

Higher One charges students a $19 monthly fee if their account hasn’t been used for nine months or more. A 50-cent fee applies when using a PIN to make purchases rather than a signature, and a $2.50 fee is charged when the card is used at other banks’ ATMs. Schools have started warning students to expect the Higher One card in the mail because a replacement runs a hefty $20. Many cards have been thrown away because students mistake them for “junk mail” credit card offers.

Higher One Earning Millions in Fees

CNBC explains that Higher One founders Miles Lasater and Mark Volchek, who came up with the concept for the company when they were students at Yale, realized that they could streamline the financial aid refund process for schools while making money from MasterCard transaction fees collected from merchants and debit-card fees collected from students.

Higher One, which went public in 2010, reported $75 million in revenue in 2009 and is on pace to more than double that in 2010. The company, which is currently servicing about 700 colleges and 5 million students across the country, raised $124 million this summer by selling its stock publicly. Sales in its most recent quarter reached $27 million, more than double from a year ago.

More than three-quarters of that money came from the fees it charges merchants and students.

Colleges and Students Disagree on Student Loan Refund Cards

Even though college officials claim that the cards can make life easier, hundreds of complaints are already popping up from students. “That’s really just not the best thing to be doing with our financial aid,” Shane Gerbert, who helped lead the campaign against Higher One at the University of North Dakota, told the Washington Post. "They’re siphoning it away little by little. I don’t like the fact that someone’s taking money from money I borrowed.”

“We really looked at it as a pretty reasonable win-win kind of arrangement,” argued University of North Dakota Vice President Peggy Lucke.

Portland State University issues Higher One cards to all students, even those without excess financial aid needing to be returned. School officials say students must carry the cards but aren’t required to activate a Higher One account, but the majority of students do so anyway.

“You pretty much went to go take your ID picture and in the mail you receive these cards and it gives you directions to activate it,” said Portland State senior Natalia Grozina. “When it’s a rule, you don’t have the option of not having it.”

Colleges Saving Money with Student Loan Refund Cards

The Denver Post reports that a seven-year deal was struck between Higher One and the Colorado Community College System. According to its contract, the state is paying the company more than $430,000 to provide the financial-aid debit cards.

“This is a good idea. It can serve as a wonderful convenience for our students, getting refunds directly deposited and the colleges can realize savings instead of doing the paper checks,” were the words of CCCS spokeswoman Rhonda Bentz. The state of Colorado should save about $300,000 a year by privatizing the work of each college as opposed to manually processing student refund checks.

“Colleges save money, true. But are they completely evaluating the impact on their students?” said Ed Mierzwinski, head of the consumer program at U.S. PIRG, an advocacy group.

Several large banks have also begun similar financial aid refund cards, says the Washington Post. Citigroup signed a deal with the City University of New York to create a similar program using prepaid cards. PNC has also started a loan card business.

Students Should Explore their Refund Options

Some students fail to realize that the card is optional.

University of Maryland’s Baltimore campus uses Higher One cards and administrator Judith Archambault said the school is careful about how it promotes the cards. At orientation, staff members tell students that they can receive loan refunds by check or direct deposit before mentioning Higher One’s debit card. “We also didn’t want it to feel like we were endorsing a particular bank,” she told the Washington Post.

The Consumerist urges students to ask if there’s a direct-deposit option to avoid unnecessary fees when they are being told they must accept a pre-loaded debit card in place of a refund check.


Melissa Rhone+

Melissa Rhone earned her Bachelor of Music in Education from the University of Tampa. She resides in the Tampa Bay area and enjoys writing about college, pop culture, and epilepsy awareness.

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