The Scam Of Student Loan Refund Cards

I read pretty much the same article today in both The Denver Post and The Washington Post. Both articles pointed to a disturbing trend in colleges where they are distributing student loans through debit cards.   The Washington Post looks at this practice as a way to circumvent the CARD Act’s restrictions on marketing and issuing credit cards to college students.   They point out that by giving students the portion of their loan above and beyond tuition in the form of a debit card, they are really just offering a credit card.   Worse, the colleges have partnered with a company called Higher One who’s business strategy appears to be based on charging fees for everything.

The Denver Post focuses on community colleges here in Colorado that are distributing funds through these debit cards.     It seems that they set up a single ATM on campus, and charge fees to withdraw money any other way.  Predictably, that ATM runs out of cash very quickly.

Colleges Getting Scammed Too

Like most states, Colorado is facing a budget shortfall during the current recession.   Somehow, someone at Higher One convinced the State of Colorado to pay them hundreds of thousands of dollars for this system to reduce the “nightmarish task of processing refund checks”.    The article points out that it is the Universities that are typically paid by financial institutions who profit from the partnership, no the other way around.     It seems strange to me that it would cost hundreds of thousands of dollars to issue checks.    Once the data is compiled on who receives the money and what their address is, it seems like a fairly straight forward process.   The state still has to send the data to Higher Once, so I don’t really see how they are adding much value to that.

What You Should Do

The Denver Post article does describes how students can download and mail in a form in order to receive their funds by check.   The fact that they have to go through such an extensive process to obtain access to their own money is further proof that the “debit card” is just a scam to rack up fees.   Even if it is a time consuming hassle, students should fill out the form and retain access to their funds without incurring any of these fees.   They might also wish to complain to their college about this costly, abusive, and unnecessary burden they have placed on their students.