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For millions of students across the country, college is the first time they’ll be confronted with the question of how to manage their money.
Complicating that challenge, according to regulators: Partnerships between schools and financial institutions that may have their own interests in mind.
During the 2021-2022 academic year, financial institutions made more than $17.3 million in revenue from 650,000 bank accounts offered through deals between schools and these companies, according to the Consumer Financial Protection Bureau. Last year, colleges and affiliated organizations, like alumni associations, earned more than $19.6 million from credit card companies seeking to partner with them to offer school-branded credit cards.
The data comes as part of the CFPB’s annual report to Congress on campus banking. As part of a 2009 law called the CARD Act, aimed at regulating credit cards, the agency is required to submit the report monitoring financial products on campus to lawmakers each year. The aggressive marketing of credit cards to college students physically on campus has declined because the CARD Act prohibits it, a CFPB official said.
“But we still think there are a lot of ways that financial institutions are still extremely interested in students as a market and as customers for life,” the official said. “We are trying to think broadly about the ways that students might get solicited by financial institutions with the assist of their schools.”
For years, the report has focused on the way banks and credit-card companies partner with universities to offer financial products to students. Through these deals, which often signal to students that a school endorses a particular product, companies get access to a lucrative demographic. Consumers who sign up for a financial product when they’re young are likely to keep that product for years and may be more likely to look to that company for other products.
A series of regulations over the past several years have helped to put guardrails around partnerships between financial institutions and colleges. Still, students are facing “high and unusual fees,” as a result of these products, the CFPB report found.
Here are some things college students should watch out for when signing up for bank accounts or credit cards offered through their schools, based on the CFPB report.
Bank account fees that generally aren’t charged elsewhere:
Thousands of colleges across the country pay financial institutions to disburse financial aid refunds, or the federal financial aid funds that are left over after a student’s tuition is paid. Typically, students will use this money for things like living expenses and books.
As part of these deals, the companies that help the schools disburse the refunds generally get to present students with an option for a bank account in which they can deposit that money. Students don’t have to put their refund money in those accounts and rules surrounding these partnerships require that a student’s existing bank account be presented as the first option for depositing the funds.
Still, by presenting students with the account through a partnership with the school and as part of the disbursement process, it can sometimes appear as if the college endorses the account. The CFPB found that many of the accounts offered through these partnerships charge fees that typically aren’t charged in the broader market.
Seventeen financial institutions charged overdraft fees on these accounts and 11 charged non-sufficient funds fees, the CFPB found. That’s even though large financial institutions have largely backed away from charging these fees in recent years. One large account provider charged a monthly maintenance fee, according to the CFPB.
In total, financial institutions earned more than $15.7 million in fees from these accounts through college partnerships, the CFPB found. Account holders paid an average of $26.50 in fees, according to the agency.
Students signing up for bank accounts should keep an eye out for these fees, but schools have a responsibility to protect students from them too, according to regulators. As part of regulations surrounding these products, schools are supposed to ensure that they’re in the best financial interest of students, including by ensuring that fees charged are consistent or below prevailing market rates, according to the Department of Education.
“Students trust their schools, not only that, Department of Education regulations exist that should make that trust warranted,” a CFPB official said. “Why is it that many college-sponsored bank accounts have these higher fees and worse terms and conditions than other products out there?”
Bank accounts with terms that change after graduation:
Some bank accounts offered through college partnerships have terms that allow the financial institution to charge more in fees after a student graduates or when they reach a certain age, according to the CFPB.
This may be disclosed in the fine print when students sign up for the account, the bureau said, nonetheless, students may be surprised to face overdraft fees, NSF fees or monthly fees after they leave school.
Restricts and fees associated with campus IDs that serve as prepaid cards:
In complaints and interviews, CFPB officials heard that some schools’ messaging led students to believe that they need to link their student-ID card to a bank account, which is prohibited by regulations surrounding campus-banking products, a CFPB official said.
What’s more, when the ID card serves essentially as a prepaid card, students can face restrictions on the funds that they wouldn’t face if they used a different account, the CFPB report found.
For example, if a student separates from the school for any reason, they may no longer have access to the funds. Finally, colleges may require that funds on these prepaid cards be used to settle a university debt before a student can use them for other purposes, like basic expenses, including rent and food.
Email and internet marketing:
Before the financial crisis, credit-card companies aggressively marketed to students on campus through tactics like setting up tables on campus with free giveaways. But the CARD Act cracked down on some of this behavior, by, for example, requiring companies to stay at least 1,000 feet away from campus if they’re offering gifts and restricting the circumstances under which someone under 21 years of age can sign up for a card.
Now, the CFPB is urging regulators to take a closer look at whether financial institutions are “aggressively marketing products to college students,” through emails or targeted online advertisements.
The CARD Act has no prohibition on marketing to students through their campus email accounts, a CFPB official said. That’s a practice that the CFPB has received complaints about, the official added.
“We have observed email advertisements from schools and from their financial partners going from schools directly,” the official said. “Students are highly likely to trust products that are being marketed to them by their school or by financial partners that may look like their school.”
