Student loan companies are trying to develop some new business lines. President Obama, by the Student Aid and Fiscal Responsibility Act, moved all federal student loans to colleges and eliminated banks from the process of services and managing those student loans. The companies that used to manage the loans need to find new ways to make money.
Back in July, College Guide reported on the new business student loan giant Sallie Mae was trying to develop: student insurance. Other student loan companies are tying out some more programs.
According to an article by Libby Nelson at Inside Higher Ed:
Banks, former student loan originators and credit card companies have entered the market, offering prepaid debit cards and (in some cases) checking accounts where students can store refunds from student loans and Pell Grants.
The newcomers, which include Sallie Mae, Nelnet and Blackboard, are drawn in by a multitude of factors: the need to find new areas of business after the end of bank-based student lending, the income from interchange fees that merchants pay when students use debit cards for payment, or simply the desire for a piece of the growing pie of student loans and grants. But just how much they will influence the market remains to be seen.
The refund distribution market was formerly dominated by Higher One, a financial services company that offered its credit card as “the key to faster refunds.”
The Higher One card, which particularly dominates community colleges, also comes with some pretty hefty transaction fees. According to Nelson’s piece, however,
Sallie Mae’s No Fee Student Checking, structured as a checking account that includes a debit card rather than a prepaid card, has no fee for PIN transactions or ATM withdrawals within the Allpoint network. PNC Bank, which offers a prepaid Visa debit card, includes free withdrawals only at PNC ATMs. Blackboard in March 2010 introduced Blackboard Pay, a preloaded debit card with free ATM withdrawals at Allpoint or STAR networks and no PIN transaction fees. Three colleges began using the system in November.
Of course, none of these companies is really necessary to process refunds; any bank account will do, but I guess it’s nice to have competition in the market sector, even if that sector itself is a little, well, superfluous.