Sending your son or daughter away to college is an expensive proposition any way you look at it. Colleges are looking for new ways to generate revenue as tuition costs have reached the limits for many students and parents. Enter the College debit card as another fee-generating opportunity that was introduced under the guise of convenience.
The idea behind the college debit card is to decrease the cost of issuing paper checks for students who receive financial aid by replacing the outdated payment method with new debit cards. No one is about to argue that the cost of issuing, clearing, cashing and reconciling paper checks is quite high for both the university as well as the student. In fact, for students that do not have a checking account, getting their money can mean paying a check cashing location 10% of the face value of the check.
All students are familiar with debit cards so on the surface it seems to be a good solution to the check issuing dilemma. In fact, some colleges have actually linked the student ID directly to a bank account in order to make it easier for on-campus purchases. The icing on the cake is that many schools have negotiated profitable deals with banks that allow all students to get a checking account linked to their student ID.
According to Herb Weisbaum, The ConsumerMan, at least one college made a deal with a financial institution that was worth $25 million over 15 years. In return for the fee, the financial institution gets the right to co-brand and link its checking accounts directly to student IDs. Banks like this relationship because they get to establish brand loyalty with the students…loyalty that is likely to remain even after they graduate. Moreover, students are likely to trust their college to offer the best deal possible and not examine the details about the card nor the fees associated with the card.
Some of the reported fees include swipe fees, overdraft fees and even inactivity fees. In fact, Higher One, a company that provides debit card services to universities, reported that half of their revenues come from student fees which amounted to $88 million in 2011.
So as you prepare to send your young adult off to school, be sure to check that fine print on any school sponsored debit card program. It could save you and your student a bundle in unexpected service fees to know the details.