Interest money

Colleges raise money from students through banking partnerships: CFPB

  • Colleges often enter into agreements with banks to provide financial aid to students.
  • But the CFPB has found that these agreements can result in significant fees for enrolling students.
  • These unnecessary expenses can come from overdraft fees, inactivity fees, and out-of-network ATM fees.

Students are probably familiar with the sight of a bank handing out free T-shirts, snacks, and other freebies to entice them to open a bank account. But a new report shows that there might be a more sinister side to banks lobbying on campus for student money.

According to an annual Consumer Financial Protection Bureau (CFPB) report on student credit cards and bank accounts, school partnerships between big banks like Wells Fargo and PNC may actually cause students to pay more than they can afford. would do it elsewhere. The agency used data from 11 banking providers that offered more than 650,000 student accounts at 462 colleges in 2020-21.

This is another data point showing some of the financial burdens associated with higher education, which remains the most consistent form of economic mobility for many Americans, but can also tie them to a lifetime of debt.

Students who commented to the CFPB about these foods “mentioned that they had to fast for two days, live for a week ‘on a 10-pound bag of pancake mix from the local food bank’, use candles to reduce electricity costs, give up textbooks and gas due to charges being billed to their accounts,” the report states. “In one instance, a commentator even mentioned that overdraft charges led to a situation where they didn’t graduate.”

Students receiving financial aid, in particular, could bear more unnecessary costs, according to the CFPB. There are multiple ways students received the $110 billion in financial aid paid during the 2021 financial year. In some cases, schools will use a third-party service provider who “will provide students with low-cost options for accessing funds via university-sponsored prepaid and debit cards linked to deposit accounts,” wrote the CFPB.

But some of those partnerships with third-party vendors mean schools are steering students towards products that cost more than they might otherwise find, according to the report. In one case, a third-party provider charged students a fee if they deposited less than $300 per month, but deposits for financial aid did not count.

In 2021, students paid nearly $15.5 million in “account fees,” according to reports. The average student out of more than 668,000 examined paid an average of $25.97 on their accounts, with many not earning enough income to qualify for the required monthly deposit of $300. Students at for-profit schools saw higher costs for their accounts.

“Many students are convinced that schools have their best interests in mind. While colleges have substantial bargaining power to obtain superior terms and prices for their students, we find that many financial products sponsored by colleges cost more to students than accounts that are readily available in the open market,” CFPB director Rohit Chopra said in a statement.

Banks are also making money from colleges through these deals – the report found colleges paid more than $4 million to BankMobile and Herring Bank in 2020-21, and schools pay vendors $11,440 on average per year.

But this incurs unnecessary fees for participating students, including monthly fees, overdraft fees, inactivity fees, and out-of-network ATM fees of up to $3.50. The report says these extra expenses can be “particularly detrimental to consumers who live on paychecks and to students who can only receive one financial aid payment per semester.”

Along with the CFPB report, the Ministry of Education published tips on a college’s responsibility to protect its students and the financial decisions they make, saying that schools “have a responsibility to ensure that certain products offered to their students are in the best financial interests of those students.”

The department said it is “concerned” that schools are not properly disclosing financial information and, alongside the CFPB’s efforts, it plans to increase oversight of financial agreements with third parties, improve the process used by schools to report any partnerships with banks and to coordinate with the CFPB to determine the best arrangements for students in the future