College-bank partnerships can be expensive for students | Catch My Job


Colleges and universities have long partnered with banks and credit unions to provide financial services such as checking accounts and credit cards students.

But regulators and consumer advocates are concerned about whether these services are actually helping students’ financial health.

The products often come with perks like the ability to use student IDs to spend on campus and at local businesses, but regulators say many of these partnerships lead students to expensive products, such as accounts with higher or more frequent fees than market standards.

In a report released earlier this month, the Consumer Financial Protection Bureau found a range of problems, from products being marketed to students to disclosures that schools are required to make public.

Students trust their academic institutions to help them make decisions

One of the main concerns cited by the CFPB is the way colleges seem to be approving financial products without encouraging students to do their homework and determine whether the advertised services are the best fit. Although the school cannot force students to use a particular service or provider, by promoting a particular financial institution, students can rely on the support of the university.

The Department of Education provides regulation for these arrangements to ensure that colleges act in the best interests of students when entering into these partnerships. It defines two different types of partnership:

  1. Level 1: Schools typically pay financial institutions to support financial aid and other payments from the school to students.
  2. Level 2: Financial institutions typically pay schools to advertise general products such as checking accounts and credit cards to all interested students.

Students with demonstrated financial need may feel more pressure to open one of these expensive accounts because a Tier 1 agreement means their school advertises the accounts as a method of receiving aid. Students can receive aid on existing or other accounts, but partner financial institutions can advertise time-based incentives to attract students, a CFPB official told CNBC Make It.

They say, ‘Do you need your money? Would you like to receive it one or two days faster? We have a product for you,’ the official said.

As a result, students were subject to higher and potentially more frequent fees than they would have with a different account or product from a comparable financial institution, the CFPB found.

“We’re seeing a shift in recent months and years in terms of some of the fees that we’re still seeing assessed on these college products,” a CFPB official said. “If you look at the leading banks in the country, most of them are undercharging [funds] fees more. And yet we’re seeing them evaluated on some of these college banking products.”

In addition, the agency found that about a third of schools that should clearly disclose payments received from partner banks did not.

Lawmakers have previously called out high fees for college-backed bills

How a 29-year-old making $245,000 a year in Anaheim, California spends his money


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