Identifying Issues with School-Affiliated Financial Products

It’s a parent’s worst nightmare: Your 19-year-old has maxed out another credit card, defaulted on a car loan and is two months’ behind on the rent.

It’s a parent’s worst nightmare: Your 19-year-old has maxed out another credit card, defaulted on a car loan and is two months’ behind on the rent.

“I just can’t seem to make ends meet,” laments your grown child. “Can I move back home?”

More and more college students are drowning in debt from student loans, high credit and debit card usage, and poor financial planning. That’s why, on January 31, the Consumer Financial Protection Bureau announced plans to investigate the impact of financial products—such as bank accounts and debit cards—marketed to students through colleges and universities.

In 2009, the Credit Card Act ended the practice of giving out “prizes” to anyone younger than 21 who applies for a credit card. Thanks to the Act, anyone younger than 21 who applies for a credit card must now have a cosigner or show the independent ability to pay.

But this protection only goes so far. Many colleges and universities have set up agreements with financial companies to offer debit cards and bank accounts to their students. In some instances, student identification cards that double as debit cards can be used to access student loan accounts, to shop online, or to even pay for late night snacks—all of which are further adding to their debt load.

“There is often a tremendous gap between the marketing of these products to students and their knowledge of personal budgeting,” says Soren T. Christensen, CEO, Advanced Wealth Advisors, LLC in Naples, Florida. “If colleges and universities market these products, they should take care to properly educate the prospective client and offer educational opportunities. Too many young people in this country get into financial trouble at a young age that they end up dealing with far on into the future.”

Through its publication, Notice and Request for Information Regarding Financial Products Marketed to Students Enrolled in Institutions of Higher Education in the Federal Register, the CFPB wants to evaluate the arrangements surrounding these financial programs to determine how these products are being marketed to students, how it is affecting their student loans, what fees students incur to use these products, and what schools can do to mitigate the impact these products can have on their students’ financial futures.

Jim Angleton, president of AEGIS FinServ Corp., a company that issues cobranded student ID cards that have debit and charge card functions, says many card issuers do not care and allow the student to utilize their scholarship funds or student loans free from restriction. “We believe that is wrong and does not send the right message to the student nor their parents,” Angleton says. “We are aware that students have used scholarship funds to party the night away, drinking and eating valuable and precious funds meant to educate them for their future. Our software programs restrict the funds outside of the educational process.”

As part of their inquiry, the CFPB is asking the public, students, schools, and financial institutions to provide input on their experiences with school-affiliated financial products. CFPB will use the responses to partner with schools on ways they can help students manage these products in conjunction with their student loans, and improve their financial prowess.

The notice, along with information on how to electronically submit comments, is located on the CFPB’s website. The public may submit comments until March 18, 2013.

The Notice and Request for Information is available at:

Fredrikson & Byron Law