FSA Moves Forward with Plans for Prepaid Card

By Joelle Fredman, Communications Staff

The Office of Federal Student Aid (FSA) is moving forward with plans to test a prepaid financial aid card and will begin next month to accept offers from companies to manage a trial of the program set to launch in the spring, according to a draft solicitation released Monday.

In the 14-page document detailing the pilot of the “FSA Payment Card Program,” FSA announced that the trial period will include four institutions with up to 25,000 customers per school. FSA wrote that it envisions partnering with a program manager who will contract other parties such as a card brand, an issuing bank, and schools selected by FSA.

FSA confirmed that the “myStudentAid” mobile app, which will be connected to the physical card to track transactions, is in the development stage. FSA Chief Operating Officer A. Wayne Johnson first introduced plans for the app and the mobile card in November at the FSA Training Conference.

The document outlined features the app will include, such as financial aid counseling. According to the document, students will receive customized text messages before spending their refunds “so as to provide the student loan customer with specific understanding of long-term dollars and cents ramification of making purchases using their student loans refunds.”

Additionally, FSA wrote of plans to restrict students’ ability to purchase certain types of products or services with the card, although “any ability to restrict purchases or merchant access using federal financial aid funds must be aligned with government approved use of funds.”

FSA specified that this program must be free for customers and schools, and that no fees will be charged for things such as annual memberships, in-network ATM withdrawals, foreign transaction fees, overdraft fees, and account maintenance fees, among others.

In the past, financial aid debit cards were highly criticized for taking advantage of students by charging them high fees for certain transactions. In fact, the release of this document comes just a few weeks after a group of Democratic senators sent a letter to Johnson requesting more information about the card, citing these incidents.The senators — Dick Durbin of Illinois, Elizabeth Warren of Massachusetts, Jack Reed of Rhode Island, Richard Blumenthal of Connecticut, and Sherrod Brown of Ohio — wrote that “history shows that in the absence of strict oversight and safeguards, these card programs can leave students and taxpayers vulnerable to exploitation.”

In response to those incidents, ED instituted cash management-regulations to protect students and parents.

After listing transactions that must not be charged, FSA wrote to companies to “please note that this will, in all likelihood, be the first financial services product introduced to a student which could then lead to a long-term, even life-long, relationship for other financial services and products.”  

 Once the pilot is underway, FSA wrote that it will assess the success of the program and determine whether or how to scale the program to include more students. 

 

Publication Date: 1/23/2018


Erin P | 1/23/2018 9:57:21 AM

Hi Charles,

Sorry about that! Here's a link to the document that you should be able to access: http://bit.ly/2G63ATo and we've updated the link above in the article.

It is early in the process and there are still lots of details to be worked out and outstanding questions to be answered, but according to the text in the draft solicitation schools would refund overages to the Payment Card and communicate with the student about the funds status as they currently do with other refund processes. Additional funds may be loaded to the Card Account from additional sources in multiple different ways. Students would then be able to use the loan refunds and all other funds allocated to the card for purchases of everyday goods and services.

-Erin Powers
NASFAA Director of Communications

Charles M | 1/23/2018 9:25:18 AM

I am unable to access the link to the 14 page document since I do not have a Politico Pro account. Would all FSA funds (Pell, SEOG, loans) be deposited to the card and the student uses the card to pay their university balance due or would only a Title IV credit balance get deposited to the card?

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