Students look to their college as a trusted source of information when determining how to pay for tuition, housing, books, and other basic needs. In the current environment, students face additional financial challenges that coincide with the onset of the COVID-19 pandemic, rising interest rates, and inflation. Each year, millions of students turn to their college when they receive federal financial aid and can receive information about financial banking products, debit cards, and deposit accounts.
Higher education institutions can help students navigate the complicated process of paying expenses and foster good financial habits when they provide information about these products. They also have a responsibility to ensure that certain products offered to their students are in the best financial interests of those students. Higher education institutions partner with third-party service providers to provide federal student aid and offer basic account products. Under Department of Education (Ministry) cash management regulations, institutions are required to disclose the terms of these partnerships and ensure that students are not overcharged.
Today, the Consumer Financial Protection Bureau (CFPB) released a report detailing findings on college banking arrangements related to campus debit and prepaid cards. The Bureau found that many institutions did not appear to be fulfilling their responsibilities under Ministry regulations, were not adequately disclosing information about these provisions, were possibly directing students to more expensive products, and were not performing – not be the necessary due diligence to ensure that the accounts offered are in the best financial interest of the students.
The Department is concerned that not all institutions are meeting their obligations under the Department’s cash management regulations. That’s why today we released a Letter dear colleague reminding institutions of their regulatory obligations in terms of monitoring agreements with financial institutions. In addition, the Department:
- Improve the process institutions use to report their financial arrangements to the Department by integrating reporting with its Partner Connect system and will add new data fields to track information to comply with Department regulations.
- Bring in additional personnel for the supervision of the third-party service agent to monitor these arrangements.
- Continue to review agreements with financial institutions as part of the program review process. Institutions that do not meet their obligations are subject to program findings.
- The Ministry will look to the CFPB for information on emerging financial market trends and prevailing market rates that may indicate what practices are in the best financial interests of students.
These efforts will span several years as the Ministry builds its capacity to effectively oversee college banking arrangements. Colleges offering certain financial products to students have a duty to best protect the financial interests of students. The Ministry and the CFPB will continue to monitor to ensure that these provisions meet these requirements.