The Clinton Herald, Clinton, Iowa

March 23, 2014

Iowa needs fresh look at 'college cards'

The Des Moines Register March 16
The Clinton Herald

---- — The Government Accountability Office found that hundreds of colleges and universities contract with financial institutions to offer banking products to students. These products include checking accounts with ATM access and debit cards where federal loan and student-aid money may be deposited.

Among the concerns of GAO investigators: Students at some schools may not have adequate access to ATMs where they can make free withdrawals, and the total fees they are paying to use the cards are not known.

The GAO investigation also brings to light a practice that raises concerns beyond students paying fees to gain access to their loan money: so-called revenue-sharing agreements between some banks and schools. These contracts provide financial rewards to colleges when students patronize a specific bank. Schools may encourage students to open an account with that bank instead of providing unbiased information about other methods of collecting their loan money and student aid payments. The GAO reports that revenue-sharing agreements for college cards have been declining, at least in part due to “the negative public attention the practice has received.” There is something wrong when colleges steer students toward a financial product because the arrangement financially benefits the school, and not necessarily the student.

The GAO investigation came at the request of U.S. Sen. Tom Harkin, D-Iowa. Some of the agreements “look far too similar to the student loan and credit card abuses we cracked down on in the past,” said Harkin.

The 63-page GAO report released in February does not identify schools that were investigated, and the Government Accountability Office would not provide the names to The Des Moines Register editorial board. So we asked Iowa’s three regents’ universities for any contracts with financial institutions offering banking services to students, as well as marketing materials related to those services.

Iowa State University partners with U.S. Bank to offer accounts to students. Federal aid remaining after tuition is paid can be deposited into the account and students can use their university-issued identification card as a debit card to access the money. Iowa State receives a “royalty” payment based on the percentage of students and former students who have these U.S. Bank accounts. The school collects about $300,000 per year.

ISU Treasurer Joan Piscitello told the editorial board the school is planning to soon update information given to students to ensure more transparency and disclosure. Written information will make clear that opening a U.S. Bank account is optional, and more information will be provided about the school’s relationship with the bank.

The University of Iowa partners with Hills Bank and Trust Co. to offer students a checking account linked to their university IDs. Though such an account is optional, the mailings and fliers emphasize the benefits of opening an account with this particular bank. In one brochure, students are offered a “free gift with your new UI Student Checking Account.” Parents who may want to deposit money into the student account are instructed to provide a driver’s license, Social Security card and personal bank account information.

While this account may or may not be a good option for a student, it’s definitely a profitable option for the University of Iowa and the bank. In addition to the $125,000 “signing bonus” from Hills Bank, the university receives a percentage of the students’ “swipe fees,” with a guaranteed minimum payment of $50,000 per year. The bank pays the school rent for a branch office on campus and contributes to the cost of the cards provided to students.

According to the contract, the arrangement nets the school more than $1 million over a five-year period. The bank may get a customer for life.

The University of Northern Iowa does not offer any ATM/debit/credit or bank account to students, said spokeswoman Lindsay Cunningham. “We require students to provide us their bank account information if they want to receive funds electronically, but these are the accounts that they have established with the banking institution of their choice.”

“Many students trust their schools and, as a result, may view co-branding as an endorsement and an indication their school has negotiated the best terms for them,” the GAO report said. But are they a better option than what a credit union or a different bank might offer? Do new students assume they should simply get in line at orientation to sign up for an account because other students are doing so?

Harkin has raised concerns about the lack of transparency for students and families when it comes to the agreements schools have with financial institutions.

The schools should post these contracts online. In fact, they should post all bids received from financial institutions seeking to facilitate such accounts.

Iowans need assurances the schools are focused on providing the best deal to students, not gaining the most revenue.