College prepaid, debit card market proposal focuses on federal aid students

May 18, 2015

WASHINGTON (5/18/15)--A proposed regulation announced Friday by the U.S. Department of Education is designed to provide tougher standards and increased transparency surrounding students receiving federal student aid, especially on prepaid cards.

The proposal would amend several regulations in an effort to protect students from excess fees and provide greater freedom to access federal student aid funds in the college debit and prepaid marketplace.

CUNA staff is currently analyzing the proposal. It comes after several failed attempts to draft a proposal through the Department of Education’s negotiated rulemaking authority.

The negotiated rulemaking authority allows an agency to invite members of interested groups to meetings where an attempt is made for consensus on the proposed rule. If it is successful, the agency may use those ideas as the basis for a proposed rule.

Working closely with CUNA during the process, Paul Kundert, president/CEO of UW CU, Madison, Wis., participated in that attempted rulemaking process, which took place last year.

According to the Department of Education, approximately 40% (9 million) postsecondary students, are enrolled in universities that have debit or prepaid card programs. Those students receive a total of about $25 billion in Pell Grant and Direct Loan program funds per year.

Once tuition and fees are paid to the school, the leftover funds are increasingly being placed into campus debit and prepaid card accounts.

The proposed rule would:

  • Prohibit universities from requiring students or parents to open a certain account into which their credit balances are deposited;
  • Require institutions to ensure that students are not charged overdraft fees if students select an account offered directly or indirectly by contractors that assist institutions in making direct payments of federal student aid;
  • Require an institution to provide a list of account options that a student may choose from to receive credit balance funds, where each option is presented in a neutral manner and the student's preexisting bank account is listed as the first, most prominent and default option; and
  • Require institutions to ensure electronic payments made to a student's preexisting account are as timely as, and no more onerous to, the student than payments made to accounts marketed through the institution.

 Comments are due to the Department of Education within 45 days of the proposal’s publication in the Federal Register, which is scheduled for today.