Democrats Push FSA for Security Information on Prepaid Financial Aid Card

By Allie Bidwell, Communications Staff

A group of Democratic senators this week sent a letter to Federal Student Aid (FSA) Chief Operating Officer A. Wayne Johnson, urging him to give more detailed information on how the agency would structure a proposed prepaid financial aid card, expressing concern that students and parents could be taken advantage of through “inappropriate fees and practices.”

In the letter, the senators — Dick Durbin of Illinois, Elizabeth Warren of Massachusetts, Jack Reed of Rhode Island, Richard Blumenthal of Connecticut, and Sherrod Brown of Ohio — noted that there have been problems with similar proposals in the past.

The senators cited a 2012 report from the U.S. Public Interest Research Group that they said showed that financial institutions that offered these types of cards to college students used “a host of exploitative fees and practices.”

“Students were taken advantage of through unreasonable and inappropriate fees which resulted in tremendous revenues for financial institutions while siphoning off student aid dollars from students and taxpayers,” the senators wrote.

In response to exploitation with prepaid debit cards within higher education, the Department of Education (ED) in 2015 finalized cash management regulations intended to protect students and parents.

Johnson announced a forthcoming pilot program for the debit cards in late November during FSA’s annual training conference for financial aid professionals. During that same speech, which focused on making FSA a more consumer-friendly office, Johnson announced plans to develop a mobile FAFSA app.

The senators said in the letter that if FSA plans to move forward with the pilot, which Johnson said would be introduced by summer 2018, the office should “extensively detail how the program will protect students and prevent financial institutions from enriching themselves” through inappropriate practices.

The senators requested that by the end of the month, FSA provide answers to a list of questions on what data FSA has collected demonstrating the need for the program, what data the office has showing the program would be more beneficial to students than other methods of disbursing aid, and whether FSA or ED will hold any public hearings on the topic, among other things.

“While we support efforts to improve the financial aid distribution process, we have serious concerns about your proposal given the poor track record of such cards in the past,” the senators wrote.  “History shows that in the absence of strict oversight and safeguards, these card programs can leave students and taxpayers vulnerable to exploitation.  Congress must be fully informed about how your proposed pilot program would impact our nation’s 42 million student borrowers and federal student aid programs.”

 

Publication Date: 1/12/2018


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