Education Dept to test putting federal aid on debit cards

Education Dept to test putting federal aid on debit cards
© Greg Nash

The Education Department will be launching a pilot program to place financial aid dollars on debit cards — a move that would allow officials to track how that federal aid is being spent.

The program, which was announced in a notice posted in the federal register this month and reported on by BuzzFeed News, would begin next month and include up to 100,000 students.

Currently, institutions receive the federal dollars, applying them to students’ tuition bills and then provide students with the excess funds. Under the program, students would receive the funds on the debit cards.

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The draft proposal for the pilot program says it would “enable more informed customer decision-making that helps Customers understand the financial implications of their student loan debt” and provide students “real-time, continuous counseling” through a mobile app.

However, the card would also limit what students could spend the federal dollars on.

Students can currently use additional federal dollars that aren't used on their tuition to cover whatever costs they like, but the program “would possess the ability to restrict the types of products and services/and or merchants that the Customer could acquire or have access to using the physical card or mobile app.”

“Any ability to restrict purchases or merchant access using Federal financial aid funds must be aligned with government approved use of funds,” the draft of the program reads.

Students would also receive text messages about the long-term “ramification” of spending the funds.

The new program would be the latest attempt by the Education Department to crack down on the use of federal funds. Last year, the department limited how much in loan forgiveness students who were defrauded by their colleges could receive.