Colleges and financial companies may direct students to more expensive financial products, despite advice from the US Department of Education.
3 minute read
The Consumer Financial Protection Bureau released a report on the terms and fees of banking products marketed in partnership with colleges to students.
According to the research, some marketing agreements between colleges and financial institutions may not comply with US Department of Education (DOE) regulations. The report also highlights the lack of transparency in the agreements schools have with financial companies.
Along with the release of this study, the DOE issued guidance to schools on what constitutes acceptable college-sponsored banking arrangements and committed to strengthening oversight of this issue.
“Many students believe that schools have their best interests in mind,” said CFPB director Rohit Chopra. “While colleges have substantial bargaining power to secure superior terms and prices for their students, we find that many college-sponsored financial products cost students more than accounts readily available on the open market. . Today’s report suggests there is still work to be done to ensure students are not directed to school-approved products with junk fees. We will continue to work with the Ministry of Education to help students find the best products possible. »
A small group of financial institutions work with hundreds of colleges and universities across the United States to provide federal financial aid and provide students with financial goods like credit cards and prepaid and debit accounts. These alliances often claim that they contribute to the financial stability of students, but the products sold to students are often more expensive than what they could normally obtain in the market.
Data from 11 account providers, including non-bank financial service providers, banks and credit unions, was included in the CFPB research. These account providers offered over 650,000 student accounts in conjunction with 462 higher education institutions in the 2020-2021 award year.
Here are the main conclusions of the CFPB:
- Financial service providers and their partner schools appear to offer and promote more expensive products to students than are otherwise available in the market.
- One entity dominates the financial aid disbursement market, providing nearly 70% of the accounts offered in partnership with schools and charging surprise monthly fees.
- Many students are directed to lists of account options that do not appear to meet DOE requirements. The CFPB has identified instances where students have been told that financial aid payments may not be as timely if students do not choose a college-sponsored account.
- Many agreements between financial institutions and colleges do not appear to be prominently displayed as required. Almost 30% of accounts in the CFPB sample had arrangements in which the financial service provider made payments to the partner school.
The DOE clarified last week that schools are required to ensure that campus financial products are in the best financial interests of students, including reviewing whether fees charged are consistent with or below prevailing market rates.
As general market financial institutions have gradually reduced or eliminated certain fees, this guideline addresses overdraft and NFL costs. The ministry also revealed it would employ more people to oversee college financial arrangements and track new data to improve enforcement of its cash management standards.
The CFPB report is the 12th annual report to Congress in compliance with CFPB requirements under the Credit Card Accountability and Disclosure Act.
The report reviews agreements and data covering more than 1.2 million student checking and credit card accounts that are governed by partnerships between higher education institutions and financial service providers, and highlights highlights market trends and possible risks.
Read the full report here: College Banking and Credit Card Agreements
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