New rules limit fees and use of campus prepaid cards

Monday, July 04, 2016

Many higher education schools and colleges use prepaid cards or student identification cards linked to bank accounts to disburse financial aid credit to students. Financial aid credit is a student’s remaining financial aid funds after tuition payment and other direct payments to the school have been made.

Schools contract with third party card servicers to steer students into these accounts and receive compensation from the servicers. Schools have been restricting students’ choice of how to receive their aid by implying that students are required to use the campus cards to access their funds or by making it difficult for students to seek other methods of receiving their funds. These campus card programs can subject students to excessive fees, limit student access to funds, and raise privacy concerns. ATM fees and limited access to ATMs, particularly fee-free ATMs, have posed significant difficulties for students.

In response to these issues the U.S. Department of Education amended its Student Assistance General Provisions regulations pursuant to the Higher Education Act (HEA). The new rules are generally effective July 1, 2016 and limit fees for use of prepaid cards.

All covered schools also must:

• Inform students that they are not required to open an account with a specific financial institution
• In a clear, neutral and fact-based manner, offer students different options of how to receive aid disbursement
• Ensure that the accounts come with reasonable access to surcharge-free ATMs
• Obtain student consent before opening an account with a third party servicer
• Clearly disclose any third party servicer arrangement contracts on the school website and provide the URL to the Secretary of Education to be publicized in a central database (by September 1, 2016)
• Disclose consideration paid or received by the school and the third party servicer (to be effective September 1, 2017).

For more information please review the Federal Register announcing the changes.