Credit unions that issue debit and prepaid cards to college students receiving financial aid could soon find themselves answering to new rules from the Department of Education, the agency announced.
Under regulations made available for public comment on Friday, higher-education institutions would not be allowed to require students to deposit their financial aid dollars in accounts with specific financial institutions. The rules would also prohibit charging overdraft fees if students select accounts offered directly or indirectly by contractors that help schools disburse federal student aid. "Reasonable access" to surcharge-free ATMs and fee-free access to financial aid funds for a 30-day period would also be required.
The rule would establish two types of arrangements between schools and financial institutions: T1 arrangements, which are agreements to process federal aid on behalf of the school, and T2 arrangements, which involve agreements to market those accounts directly to students and their parents.
Higher-education institutions will also have to give students a list of account options for receiving their financial aid funds under the proposed rules, and the list options must be "presented in a neutral manner," according to the announcement. The student's preexisting bank account must appear first on the list, the Department of Education said.
Schools will not be allowed to share personal information about students or their parents with a financial institution unless the student or parents already have an account with the financial institution, the proposed rules said. School contracts with financial institutions governing the arrangements would be public record as well.
Finally, the proposed rules require higher-education institutions to ensure electronic payments to a students' preexisting account are made just as quickly as they would be to accounts marketed through the school.
"Through these proposed protections, the Education Department seeks to protect students from unreasonable account fees, safeguard taxpayer dollars, provide transparency regarding accounts offered to students by requiring disclosure of the agreements between institutions and financial account providers as well as the costs students incur, ensure students have a choice about how to receive their federal aid, and prohibit their personal information from being shared without their consent," the department said.
The rules could mean schools will have to spend more time reviewing contracts with financial institutions, reviewing ATM network access, creating fee disclosures and creating lists of neutral account options for students and their parents, the Department of Education noted.
"Financial account providers could have to deploy additional ATMs or pay fees to ATM network providers to comply with these proposed requirements," the department added.
The Government Accountability Office found that 11% of colleges and universities that get federal student aid have agreements with financial account providers, and about 40% of all postsecondary students are enrolled in schools with these agreements. Almost half of the schools that use college-affiliated debit and prepaid cards to disburse financial aid are community colleges, the Department of Education said.
The public comment period is open until July 2, 2015.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
