Questions About Student Aid Debit Card

"The Office of Federal Student Aid’s plans for a prepaid student aid card would position the office -- and the contractor it selects -- for a long-term, even lifelong, relationship with student borrowers, according to documents released this week," Inside Higher Ed reports. 

"The prepaid card is one of several new initiatives pushed by A. Wayne Johnson, who became FSA's chief last fall. Johnson has promised that the card, which is essentially a debit card for student aid funds, would allow the Education Department to add better customer service and help students understand the implications of their spending and how it affects their student loan debt. Combined with a new mobile app the department is developing, students would get proactive reminders about spending and account balances.

But some consumer advocates say Federal Student Aid’s ambitions to occupy functions of a traditional bank go beyond its mandate. They also are troubled by the potential for student data to be marketed to private entities or for FSA to restrict where students spend their federal aid money.

In the midst of a broader discussion of student loan debt and the cost of college, the payment card is part of a push by FSA to reshape both the service it provides to students and the behavior of aid recipients themselves. Those efforts also signal a shift in the office's traditional role, from an entity that simply disburses student aid to a quasi financial institution with an intense interest in how students spend their funds.

FSA late last week posted a notice of a February solicitation for outside companies to handle a pilot program for the prepaid cards. The test run would begin this spring at up to four colleges and involve as many as 25,000 students at each institution.

Student borrowers would be able to apply for the card online or at their campus, load it with student loan money and use the card to cover college costs. The card would come with no fees and would allow a student to issue checks from their account and monitor transactions.

'Where does FSA begin and end? Traditionally we thought it begins and ends with disbursing financial aid dollars and paying back loans. And even that has been an evolution,' said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators. 'I think it does raise questions.'

But consumer advocates are concerned about details of the proposal -- and question why the department is devoting time and energy to the prepaid cards when it has significant resources devoted to other ambitious projects. FSA also is developing a mobile tool for applying for federal student aid, which is expected to launch by the spring, and a restructuring of its contracts with student loan servicers is underway that promises significant changes to the handling of student loan payments."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.

 

Publication Date: 1/26/2018

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