Fee-packed, college-backed debit cards earn a failing grade

Jen A. Miller picture

If you've got kids going to college this fall, one thing you want to avoid packing in their suitcase is a school-endorsed debit card.

These fee-heavy financial products have been worming their way through colleges and universities.

According to a new study from the U.S. Public Interest Research Group -- aptly named "The Campus Debit Card Trap" -- there are now more than 900 partnerships between colleges and banks or other financial firms for them to hold your kids' cash -- and charge them for it.

These agreements either turn the student's college ID into a debit card or push students into signing up for school-branded, stand-alone debit cards onto which their financial aid is placed.

So instead of getting a check or direct deposit from the financial aid department for whatever money will go toward non-tuition expenses like books, it'll be put onto one of these debit cards.

This sounds convenient. But it's another way for banks to make money on fees -- lots and lots of money.

Why else would Huntington Bank pay Ohio State University $25 million for their agreement?

The biggest player in this market, a firm called Higher One, earns 80% of its revenue on user fees. It has contracts with 520 campuses.

The fees can be steep, too.

One example: Higher One charges 50 cents every time the student uses a PIN to make a purchase versus signing for it.

Plus, there's the usual replacement card fees and out-of-network ATM fees.

The U.S. PIRG report found that many of Higher One's campuses either don't have enough ATMs to meet the demand of students (for 520 campuses, there are about 600 ATMs) or the ATMs are located in campus buildings that aren't open on nights and weekends, forcing students to pay fees to use other ATMs.

The banks make out big, and many schools do, too.

Florida State University, for example, gets a cut of every student ATM fee.

So what can you do?

Don't accept these cards.

The banks and colleges will put their full marketing force behind them, portraying them as the only option. But they're not.

If your child is going to get money from the financial aid office for non-tuition expenses, have them ask for a paper check or a direct deposit.

It will take longer to get the money than it would if they signed up for the debit card or turned their student ID into a debit card, but that's OK. The wait is worth it to avoid these obnoxious fees.

Then if your kid wants a debit card at college, he or she can sign up for a fee-free account at a bank or credit union of choice.

College is expensive enough. We don't need to be paying banks and colleges even more with these worthless fees.