More information is coming out about the strange situation with bank cards and financial aid programs in Colorado. Students in the Colorado Community College System were told they could access their financial aid refunds faster if they signed up for one particular debit card, the one offered by financial services company Higher One.

Well apparently the community college system knew the company offering the debit card was giving a pretty crappy deal to students but went ahead with the relationship anyway.

Last fall the Colorado community college system was looking for a new financial management software program. Many companies submitted bids. Higher One was one of them. But Higher One didn’t win the contract, at least not at first.

According to an article by David Migoya in the Denver Post:

The Colorado Community College System review panel that approved the deal had rejected Higher One’s debit card proposal early in the bidding process, ranking the Connecticut company last among eight firms vying for the lucrative multi-year contract, according to state documents reviewed by The Denver Post.

The eventual CCCS contract winner, CASHNet, scored highest among the eight bidders. It was one of three companies invited to make a formal proposal on Nov. 13, 2009, to a review panel of five people that included CCCS administrators and community college officials.

Six days after CASHNet made its formal proposal to the panel, Higher One bought the company for $37 million.

So basically Higher One proposed a financial management system, along with the debit card requirement. The Colorado community colleges rejected it. One official explained her rejection: “Higher One has (a) very limited understanding of the requirements of CCCS.”

CASHNet proposed a different, more efficient financial management system (and no debit cards). The Colorado community colleges rather liked that one. Then Higher One bought CASHNet. And put the debit cards requirement back in. And then it got the contract.

While the current agreement does end up saving Colorado thousands of dollars a year, the debit card fees end up costing students money. More importantly, however, the agreement undermines competition for student dollars between banks; signing up for the debit cards became the only convenient way for students to access their own financial aid money. [Image via]

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Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer