College students, who are staggering under record college debt, won a small victory on Tuesday.
They'll no longer be forced to pay onerous fees that cut into the financial aid dollars they need to cover their college costs.
Despite fierce, multimillion-dollar lobbying by the financial industry, the U.S. Department of Education rolled out new regulations designed to protect students from unfair campus banking practices.
The rules will address what consumer activists have called an all-too-cozy relationship between colleges and banking interests that come at the expense of students.
The controversial practice has occurred when schools dispense excess financial aid dollars to students. The federal government sends a student's financial aid directly to a school and sometimes money is left over after the college's costs are covered. For instance, once a school pays itself for its tuition and fees, an institution would release any remaining dollars left to a student to pay for off-campus housing, books and other expenses.
What consumer groups and the federal government found unacceptable was how students were getting these excess funds. Instead of providing students with a check or depositing the money in their accounts, many schools were transferring the cash via debit cards or prepaid cards. Some of these cards charged unreasonable fees to students such as for using a PIN number when using the card.
Schools that diverted financial aid money to outside financial firms and banks received millions of dollars for agreeing to these lucrative card partnerships. The practice was widespread. According to the Department of Education, colleges with these agreements enroll roughly 9 million students, or about 40 percent of all college students.
"Students deserve safe and convenient access to their financial aid funds without incurring costly charges," said Suzanne Martindale, staff attorney for Consumers Union, in a statement. "We applaud the Department of Education for taking action to protect students using campus banking products from aggressive marketing, restricted choices and high fees."
When the new regulations take effect beginning July 2016, schools cannot require students to use a specific prepaid or debit card to receive financial aid money. Schools must provide a list of options, including the student's own bank account. If a student selects an option via a college's financial partner, the school must ensure that students aren't charged excessive and confusing fees.