Payments Innovation

Department Of Ed Piloting Financial Aid Prepaid Card Program

Flywire Cross Border Student Payments

In a move that seems fairly sure to generate some “Big Brother is watching” jokes, the federal Department of Education is planning to give students prepaid cards to hold loan funds not used directly for tuition.  The cards, according to New York Times reporting, will give both the government and financial services providers a clearer look into how students spend those funds.

According to reports, students with said cards may even get text messages opining on their spending choices from the feds.

The Office of Federal Student Aid notes that it expects to introduce the pilot program during the late spring 2018. As many as 100,000 students across four schools, which have not yet been chosen, will be able to opt for the prepaid card.

According to the Department of Education, the cards are a cost-effective way to provide students access to a bank-like product. Consumer advocates feel the effort may be a bit too controlled and paternalistic.

The text commentary on spending is designed as an attempt at real-time financial counseling, according to a solicitation document issued by the Education Department.

The service would provide “the student loan customer with specific understanding of long-term dollars and cents ramification of making purchases using their student loan funds,” the document states.

But cards and students have a mixed history, particularly when it comes to fees. Higher One got famous for offering debit accounts littered with fees to college students, and for the fines the paid when their practices were exposed.

This mixed history has lead to some doubts about the program.

“While we support efforts to improve the financial aid distribution process, we have serious concerns about your proposal, given the poor track record of such cards in the past,” Senator Richard J. Durbin, a Democrat from Illinois, and four other senators wrote in a letter to Wayne Johnson, chief operating officer of the Federal Student Aid Office.

“In the absence of strict oversight and safeguards,” they wrote, “these card programs can leave students and taxpayers vulnerable to exploitation.”

The card, as designed for its coming roll-out, will reportedly have features that will make it easier for parents to load in additional funds and the ability to make P2P payments. Budgeting options to help students control spending are also on the drawing board.

The department said students at schools in the program would still be able to receive their money through existing methods — paper checks and direct deposit into their bank account or onto another prepaid card — if their schools offered those options.

——————————–

Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The September 2019 AML/KYC Tracker Report provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.

TRENDING RIGHT NOW

To Top