Students at Iowa State University are being offered accounts through U.S. Bank that allow their student I-D cards to be used as debit cards. The popular practice on college campuses is under scrutiny. U.S. Bank reportedly pays ISU a fee of $300,000 a year to be the chosen bank for the program.
That worries Rohit Chopra, a student loan ombudsman at the Consumer Financial Protection Bureau. “Students and their families may be perceiving that the school has chosen a product because it is more competitive or lower cost than what the student could find elsewhere and the CFPB found in many cases, this was just not the situation.”
Many students get financial aid through the university and any money left over after the tuition and fees are paid is put directly into the bank account. Chopra says schools are required to disclose financial ties with credit card companies and they aren’t allowed to promote any particular student loan providers, but that doesn’t cover debit cards and checking accounts.
“Some of the same practices that many found troubling in the student loan market seem to be reappearing in this market as well,” Chopra says. In the past, Chopra says some university employees got kickbacks for driving business to certain student lenders.
Now with the debit cards, he says the relationship may get too cozy with bank employees working right in the student I-D office at some schools. At a recent hearing in Washington D.C., students complained about excessive fees with the debit card accounts.
ISU’s university treasurer Joan Piscitello submitted information for that hearing. “We’re very open about this relationship,” Piscitello says. “We try to very hard to communicate to students and parents that this is an option, it is not required.”
The treasurer says it’s up to parents and students to decide how the U.S. Bank fees compare with those, for example, of a student’s hometown bank. Teri Charest, a spokeswoman for U.S. Bank in Minneapolis, says they are competitive. “Our student checking account actually is really good,” Charest says. “It’s recognized by Money magazine as one of the best in the country for students.”
U.S. Bank wouldn’t say if the bank makes money on the deal, or if it’s a loss leader and a way to get students on board and keep them after graduation.