Figure  1 depicts the process for paying financial aid and other funds to students. Because these  schools were generally larger, their student populations represented  about 40 percent of total enrollment. At Least 852 Schools, Including Many Large Public Colleges, Have College Card Agreements

In our review of industry reports and school and provider websites, and  our interviews with card providers, we identified 852 U.S. colleges and  universities with college card agreements as of July 2013, representing  about 11 percent of all schools participating in federal student aid  programs. 2). Comprehensive data are not available on how many students choose to  enroll in a college card. One Nonbank Financial Firm Had More Than Half of the College Card Market

As of July 2013, one provider, Higher One Holdings, Inc., held about a 57  percent share of the college card market, as measured by number of  agreements between schools and card providers, as well as number of  students at schools with agreements, according to our analysis. However, fees charged by credit unions  typically were the same or lower than those charged by college cards. Data Unavailable on Total Fees Paid

Although college card fee schedules we reviewed generally were not  higher than those of basic or student checking accounts, little information  is available on the frequency with which students incur ATM, PIN, and  other fees, and the total amount of college card fees paid by students is  unknown. However, it  is difficult for students and others to assess the influence of financial  incentives on school behavior due to the lack of transparency for card  agreements. Presentation of Card and Payment Options Was Not Always Neutral, Raising Questions about Student Choice

Although schools cannot require students to use college cards, federal  officials and consumer advocates have raised concerns about the extent  to which students have been able to make fully informed choices about  whether to enroll in the debit or prepaid cards their schools offer. Some schools  also recommended direct deposit over their campus card. In  addition, in its best practices recommendations for college cards,  NACUBO called for “a fair explanation of services  misleading,  biased, or aggressive marketing schemes.”

			Payments to Schools May Create Potential Conflicts of Interest

Revenue-sharing agreements appear to be declining, but concerns  remain that the payments and other benefits schools receive from card  providers may motivate schools to encourage the use of college cards or  potentially choose the arrangement that provides the schools the most  revenue rather than one that provides students the best terms, according  to federal officials and consumer advocates. Financial markets function best  when consumers are fully informed about financial products and how to  choose among them, and NACUBO has recommended that schools  present students with information about their college cards in a neutral  fashion. On another key issueaccess to fundsEducation’s regulations require  that college card providers offer “convenient access” to ATMs or a bank  branch office where students can withdraw federal student aid without  incurring cost, but the agency has not specified what constitutes this level  of access. Matter for Congressional Consideration

To help ensure a comprehensive understanding of the agreements  between colleges and debit and prepaid card providers, Congress should  consider requiring that providers file these agreements with CFPB for  public review, and provide other relevant information, such as payments  between schools and the providers and fees charged to students, and  that Education provide reasonably prominent notice of the availability of  such information. Recommendations for Executive Action

To help ensure that students can make an objective choice about whether  to use a college card selected by their schools and have free and  convenient access to federal student aid funds, the Secretary of  Education should take the following actions:  In consultation with CFPB, develop requirements that schools and  college card providers present students with objective and neutral  information on their options for receiving federal student aid  payments. Provide a specific definition for what constitutes convenient access to  ATMs or branch offices of debit and prepaid card providers where  students will not incur costs in making cash withdrawals of federal  student aid. Agency Comments

We provided a draft of this report to the Department of Education, the  Bureau of Consumer Financial Protection, and the Federal Deposit  Insurance Corporation. Appendix I: Objectives, Scope, and Methodology

This report examines (1) functions of college cards and the characteristics  of schools and card providers offering the cards, and (2) benefits and  concerns regarding these cards. Selection of Schools for Extended Review

To complement our data analysis, we selected nine schools with college  card agreements for extended interviews and data collection. To compare college card  fees with fees for similar banking services, we also compiled fee  information for basic and student checking accounts from five large banks  (which account for about 30 percent of the market for large commercial  banks) and for credit unions.monthly account maintenance, domestic out-of-network transactions at  automated teller machines (ATM), overdraft or insufficient funds,  inactivity, wire transfer, and debit transactions using personal  identification numbers (PIN). Although  there are some similarities, these card programs generally differ from the  debit and prepaid cards that some U.S. colleges and universities use to  pay financial aid and other funds, which can include federal student aid  funds.
Why GAO Did This Study

A growing number of colleges and universities have entered into agreements with financial firms to provide debit and prepaid card services for students. As the number of agreements has grown, questions have arisen over fees and issues such as student choice. This report examines (1) the functions of college cards and the characteristics of schools and card providers offering the cards; and (2) benefits and concerns regarding these cards. GAO reviewed relevant federal laws and regulations, developed a tally of card agreements by reviewing industry reports and school and provider websites, and analyzed data and interviewed officials from federal agencies, banks and other financial firms, students, and industry and consumer groups. GAO selected nine schools (which vary by program length and sector) for extended interviews and data collection.

What GAO Found

At least 852 schools, or 11 percent of U.S. colleges and universities, had agreements to provide debit or prepaid card services to their students as of July 2013, and most offered students the ability to receive federal student aid and other payments on a card. These schools were disproportionately large; their enrollments constituted about 40 percent of all postsecondary students. However, the percentage of students enrolled in their schools' college card programs was unknown. In the majority of agreements, the schools also outsourced to their card provider the process for paying financial aid and other funds via college cards and other methods. Some schools also used college cards as student identification. The dominant provider was Higher One, a nonbank financial firm that had a 57 percent market share in 2013, as measured by number of card agreements.
Benefits of college cards can include convenience for students and cost savings and efficiencies for schools, but concerns exist in a number of areas:
Fees. GAO found that fees charged by college card providers generally were comparable with those for similar products provided by banks, although some college card fees were slightly higher than those of credit unions. However, two large providers charged a fee for card purchases using a personal identification number (PIN) rather than a signature—a fee mainstream debit cards typically do not charge. The total fees students pay are not known, and some providers declined or said they were unable to provide these data to GAO. In 2012, Higher One settled with the Federal Deposit Insurance Corporation, which alleged unfair and deceptive practices that resulted in consumers paying higher fees.
ATM access. Officials at nine selected schools generally did not report significant issues with the availability of fee-free automated teller machines (ATM) on campus. Although Department of Education regulations for college cards require that schools ensure “convenient access” to fee-free ATMs or bank branches for students receiving federal student aid payments, the agency has not specified what constitutes this level of access. The lack of a more specific definition may make avoiding unnecessary fees difficult for students when making cash withdrawals of federal aid.
Neutrality. GAO found instances in which schools or card providers appeared to encourage students to enroll in a college card rather than present neutral information about payment options. The financial marketplace functions best when consumers are fully informed and have unbiased information. However, schools may have incentives to influence student choice because some receive payments from card providers based on the number of card accounts or transactions, leading some consumer advocates to question whether schools always act in their students' best interests. Furthermore, the contracts between schools and card providers are not publicly available and data on these cards are limited, in contrast to another college-related product—affinity credit cards bearing the institution's name or logo—for which key information must be disclosed. Increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest.

What GAO Recommends

Congress should consider requiring that financial firms providing debit and prepaid card services to colleges file their agreements for public review and provide other relevant information. The Department of Education should (1) specify what constitutes convenient access to ATMs or bank branch offices for students receiving federal student aid funds and (2) develop requirements for schools and card providers to present neutral information to students about their options for receiving federal student aid funds. The Bureau of Consumer Financial Protection agreed with GAO's matter for Congress. Education agreed with GAO's recommendations to it and said it will address these issues in an upcoming process to develop new rules.