New rules have been on the radar since at least 2013, and the proposal comes on the heels of Government Accountability Office findings 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. According to a U.S. PIRG analysis cited in the Department of Education's proposal, 32 of the 50 largest public four-year universities and 26 of the largest 50 community colleges have campus debit or prepaid card contracts with financial institutions. 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.

Two aspects of the proposed rules are particularly troublesome for some in the card industry. First, the rules would prohibit charging overdraft fees if students select accounts offered directly or indirectly by contractors that help schools disburse federal student aid. According to the proposed rules, the proposed regulations would make card issuers responsible for placing authorization limits instead. Second, reasonable access to surcharge-free ATMs and fee-free access to financial aid funds for a 30-day period would also be required, meaning financial institutions might have to deploy additional ATMs or pay fees to ATM network providers to comply.

"The notion that the department throws out there that schools would cover the fees isn't going to happen," Anne Gross, vice president of regulatory affairs at the National Association of College and University Business Officers, said. "Schools couldn't open themselves up to that kind of uncertainty about what the fees would be. We're a little surprised about it because it's considerably more generous than the Department of Treasury has on their Direct Express card, which only allows one free withdrawal per deposit, not a whole month anywhere you felt like doing it."

Under the Department of Treasury's Direct Express program, people receiving VA compensation or pensions, Social Security benefits, federal retirement benefits or Railroad Retirement Board annuities are eligible to have those benefits placed on a prepaid MasterCard debit card issued by Comerica Bank. That card is marketed as "Treasury-recommended" on the Treasury's GoDirect site, and 95% of cardholders in a 2014 survey said they were satisfied or very satisfied, it said.

There is also no definition of how many fee-free ATMs must be near a school, and the geographical nature of some higher-education institutions could be an issue, Gross added.

"You have schools that teach at all sorts of locations," she said. "Think of a community college that may have some classrooms over in a storefront somewhere. You would hate to see a definition that nails it down too tightly because of all the different kinds of places."

Read more: Schools may have to share enrollment data with institutions under the rules …

The proposed regulations may also mean schools will have to share enrollment data on a regular basis with financial institutions, Gross noted.

"The banks don't have any way of knowing who is still a student," she explained. "They may know that they're a student when they open the account, but they don't know a year later if they still are or not."

FERPA regulations, which regulate what schools can disclose about students, may complicate that, she added. And then there are the questions about the Department of Education itself.

"What everyone is very concerned about is the regulatory creep by a department into an area that they don't understand," Brian Tate, vice president of government relations for the Network Branded Prepaid Card Association, said. "And they don't seem willing to try to learn more about this. Hypothetically, if this rule goes into effect in its current form, there are going to be agreements that have to be rewritten."

Schools may need 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, he noted.

"I don't think that's a minor issue," he said. "That's real money in this time where tuition is increasing and funds are scarce."

Lowell Adkins, executive director of the National Association of Campus Card Users, added, "I think the frustration is that there are some very specific cases where behaviors weren't appropriate, so we're opening this larger regulatory conversation when maybe it was just a matter of going to talk to some specific players and saying, 'Hey, get your act together.'"

For Adkins, there is one bright side to the proposed regulations: They're finally on paper.

"I think it's been frustrating for all of our members in just not knowing," he said. "At least now we know what the rule is likely going to be. I assume either there may be some effort on the parts of the banking community to maybe tweak the rule, but at least we know what it is at this point."

Only a handful of public comments have come in so far, and the clock is ticking.

"We think the time they've given us is awfully short," Gross added. "They took a year to write the regulation and then they're giving themselves four months before their deadline to review comments. We have to reach out to 2,100 members and gather data and people's concerns and things in 45 days."

NACUBO and several other organizations will probably request an extension to the public comments deadline, she added. At that point, financial institutions will have to decide if it's worth doing business with higher-education institutions.

"One of the things is that the banks may decide they are going to take a step back and take a look and see if this is where they want to be, which I think would be unfortunate," Adkins said. "At least from my perspective, I think it would be sad for them just to go away. I think I would say that even if they weren't stakeholders."