Education is a key component to unlocking opportunity and advancement in our country today, but for many students, achieving the dream of a college diploma comes with a high price tag and subsequently a large amount of debt. Unfortunately, burdensome regulations and backward-looking policies can only exacerbate these costs and further inhibit students from reaching their full potential.
Currently, the Department of Education is examining the process by which students are able to access what are known as Title IV funds. These funds encompass all federal loans, grants, and assistance to college students. Universities are responsible for applying the funds to tuition and fees for each student as well as disbursing the remaining amount to each individual student.
Universities have multiple options for distributing funds, which is a very good thing for students. Many college students today do not enter school with a checking account. Technically that makes them part of the 67 million Americans who are unbanked or underbanked in this country. Ultimately, it means students have no way of easily depositing checks or accessing other forms of payment. This could also translate to fees on students’ federal funds if their aid is issued by check and they turn to a bank at which they do not have an account or to a check cashing service to access their funds.
Fortunately, the financial industry has evolved past the checking accounts of our generation to products that are less reliant on brick-and-mortar banking institutions and better suit the needs of our instant access, technology-driven society. Many students and parents today opt to receive Title IV funds through a prepaid student card offered in conjunction with a college or university. These cards are convenient for students because they can be used to buy books, meals or other needs wherever card networks like Visa and MasterCard are accepted. Parents can monitor students’ spending through the cards and also load additional funds.
There are also many benefits for colleges and universities from prepaid cards. According to the U.S. Department of Treasury, the cost to issue a paper check is over $1, but electronic disbursements cost only about 10 cents, which is why the federal government is mandating the use of electronic disbursements whenever possible. For Title IV funds, this translates to a potential cost savings of up to $11.3 million in the first quarter of 2015 alone.
Appropriately, financial products aimed at students should include a high degree of safety measures and oversight. Currently, the Department of Education mandates that students be given a choice of disbursements options and that, if chosen, prepaid cards come with full disclosures of all fees, access to convenient ATMs located on or around campus, and a fee-free way to remove all funds from the card in a single transaction.
Despite these existing protections, the Department of Education is now considering new regulations that could limit the choices of students and universities, while increasing the costs associated with the disbursement and use of Title IV funds. The recently proposed rule could drive students to more difficult and cumbersome methods of access. Additionally, utilizing more expensive disbursement methods would increase costs to schools that could potentially be passed along to students in the form of higher tuition and fees for post-secondary education.
It is unconscionable that the department is proposing rules that will result in higher costs for college students. Given the harmful financial consequences this rule will likely have on institutions of higher education in this country, the department should withdraw the proposed rule and instead look for ways to foster innovative and creative solutions to increase affordability of and access to education.
Fauss is the president and CEO of the Network Branded Prepaid Card Association (NBPCA). Fauss previously served as interim executive director, general counsel chairman of the board, and as a director through nearly a decade of involvement with the NBPCA. Fauss is also an accomplished attorney with more than 20 years of experience, most of which has been focused on payments law, including senior leadership positions with Brightwell Payments, TSYS Prepaid and Global Payments, among others. Fauss served as the executive vice president, general counsel and corporate secretary for Brightwell Payments. Before working in-house, Fauss practiced law with Alston & Bird LLP in Atlanta, Georgia, and Parker, Poe, Adams, and Bernstein, LLP in Raleigh, North Carolina.