Some College Students Pay More for Bank Fees Than Books

Photo (cc) by US Department of Education

Some students are paying more in checking account overdraft fees assessed to their college-branded checking accounts than they pay for books, according to a report issued this week by the Center for Responsible Lending. And they are using financial aid funds to pay those fees, the advocacy group says.

The CRL report comes as the Consumer Financial Protection Bureau is advocating for new disclosures that would make it easier for schools and students to compare fees on college-branded debit cards that have become popular on campuses around the country.

Many schools disburse financial aid on the cards, giving partner banks a captive audience for new customers. A prior study found a 70 to 80 percent take-up rate for students receiving financial aid with a partnership in place. But the schools, which often profit from the partnerships, are failing to bargain aggressively on behalf of students, according to CRL. Many co-branded checking accounts and debit cards have higher fees than products available in the open market, the group says.

Debit card college partnerships have exploded in popularity since the financial reforms passed in 2009 essentially kicked co-branded credit cards off campus. The new rules didn’t address debit cards, however, so many banks have focused their attention there.

Many co-branded debit cards allow students to incur overdraft fees totaling more than $100 per day. The fees can include cascading fees that hit accounts when debit card purchases are made that send a student’s balance below $0.

The Consumer Financial Protection Bureau says 11 percent of young adults are hit with an average of 19 overdraft fees each year. That group pays an estimated $710 annually, according to CRL, more than the average of $655 spent on textbooks each year.

When financial aid funds are disbursed on the cards, the money in the account is fair game for banks to collect the fees.

“What this means is that financial aid dollars are being diverted from educational uses to pay bank fees,” said Leslie Parrish, deputy director of research and co-author of the report. “So in a sense, overdraft fees are a loan on a loan – a loan from the bank financed by a student loan. This is a cycle that’s abusive, that costs young people dearly, and that can easily be remedied by more responsible financial products.”

In January, the Consumer Financial Protection Bureau released what it called a “Safe Student Account Scorecard” that would get schools and banks to clearly explain their financial arrangements and the fees students might face. Some schools, for example, receive a portion of the fee income generated through debit card partnerships. The scorecard is voluntary, however; the CFPB does not have authority to regulate college debit cards.

So the CRL is calling on schools to negotiate better deals for students.

“Schools are failing to take full advantage of their bargaining power to best serve the interests of their students,” said Maura Dundon, senior policy analyst and another co-author. “Colleges have a responsibility to ensure the safety of their students – and this should include financial safety as well. Ensuring that the products marketed on campus reflect students’ best interests falls well within the scope of that crucial responsibility.”

What should you or your student do?

Because of the way financial aid is disbursed, it is convenient for many students to use the school co-branded accounts, though it’s important to note that students can opt out of the programs, use their own accounts, and receive their funds via paper check. Ideally, whatever account is chosen is opened before the student sets foot on campus, and selected by shopping around and comparing ATM access, fees and other important features.

Those who do opt to use debit cards to receive their financial aid would do well to keep use of that account exclusively for basic school costs, like tuition and books, and maintain a separate checking account and debit card for everyday expenses and income. Mingling big financial aid payments with small everyday coffee purchases is the kind of account “velocity” that makes for budget confusion, and also helps banks rack up the fees.

Want to learn more about hidden fees and other Gotchas? Visit the “Gotcha” section of Bob Sullivan’s website.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
15 of the Most Outrageously Overpriced Products
15 of the Most Outrageously Overpriced Products

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

The Worst Nursing Homes in America Are Revealed
The Worst Nursing Homes in America Are Revealed

The nursing homes with a history of providing subpar care previously hadn’t been identified for a government list.

Half of All Retirees Say They Fear This
Half of All Retirees Say They Fear This

Chances are good that you share this fear. Here’s a way to overcome it.

8 Products to Reduce Anxiety and Stress
8 Products to Reduce Anxiety and Stress

Current events have you feeling anxious? These Amazon products can take the edge off.

11 ‘Disposable’ Items You Should Be Reusing
View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.