Education Dept. Urged To Thwart Aid Abuses By Debit-Card Issuers

Career College Central summary:

  • The Department of Education should take steps to ensure that students are protected when colleges use third-party servicers, like Higher One, to deliver financial-aid refunds, says a new report by the department’s inspector general. The report, which focuses on three colleges that use servicers to distribute leftover student aid, and one that offers direct deposit through an arrangement with a bank, says the colleges were doing little from 2010 to 2012 to monitor their contractors’ compliance with federal student-aid and privacy laws. The colleges were not preventing the servicers from steering students to their debit-card option, and sometimes participated in doing so.
  • Like the Government Accountability Office, which recently issued a report of its own on debit cards, the office of the inspector general also examined the fees associated with such cards, and the availability of fee-free ATMs to use them. It found that Higher One and Sallie Mae (which has since sold its refund business to Higher One) both charged fees when students chose the "debit" option at checkout, rather than signing for a purchase. They charged three to four times as much as most banks to replace lost cards, and assessed fees on inactive accounts. While the two colleges affiliated with Higher One had fee-free ATMs on their campuses, the college then working with Sallie Mae did not.
  • The report also notes that conflicts of interest can arise when the servicers offer colleges bonuses based on the number of students who open accounts, likening the practice to the "inducements" that lenders once offered financial-aid administrators to recommend their products. The Education Department and Congress banned such revenue sharing several years ago, and the report recommends that the department do the same for debit-card agreements.

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