Student banking products offered by financial institutions and colleges are often more expensive than comparable products and often don’t follow Department of Education requirements, according to a recent report from the Consumer Financial Protection Bureau.
The report included data on 11 account providers, including banks, credit unions and nonbanks, which together offered more than 650,000 student accounts with 462 colleges and universities during the 2020-21 school year. The providers offered federal financial aid along with student credit card, prepaid and debit accounts.
According to the CFPB, student banking products offered through such partnerships failed to meet Department of Education regulations requiring issuers to allow students to select the way they receive their financial aid from a neutral list and not be “coerced into selecting college-sponsored products under threat that their financial aid disbursements will be delayed if they choose non-sponsored accounts.”
The CFPB alleged that “hundreds of schools” violated federal transparency regulations by not properly posting the agreements they had with financial institutions. “Nearly 30 percent of accounts in the CFPB’s sample were subject to arrangements in which the financial services provider made payments to the partner school,” the CFPB stated. “Schools are required to post on their websites the agreements they have with financial services providers, any compensation exchanged between them, and the average costs paid by students.”
The CFPB sees the market for student banking products as being dominated by only a few providers. The agency alleges that one provider with an especially strong footprint “imposes surprise monthly fees,” including charging account-holders monthly service fees on accounts with less than $300 in qualifying deposits per month without considering that financial aid disbursements could comprise the majority of the deposits.
“While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market,” said CFPB Director Rohit Chopra. “Today’s report suggests that there is more work to do to ensure that students are not steered into school-endorsed products with junk fees. We will continue to work with the Department of Education to help students find the best possible products.”