Why I “Chose” My Bank

CampusATM

My student ID card—we call them WildCARDs at Northwestern, our mascot being a wildcat—doubles up as a debit card for my U.S. Bank checking account. A study published last month says such dual purpose student ID cards are common.

But linking checking accounts to student IDs creates problems, according to “The Campus Debit Card Trap: Are Bank Partnerships Fair To Students?” a study released on May 30 by the United States Public Interest Research Group Education Fund.

The consumer group looked at the various ways nearly 900 universities partner with financial institutions. It found that these partnerships have allowed some student IDs like mine to work as debit cards. In many cases, schools also delegate the task of disbursing student aid money that the school receives from the federal government to students.

The report raises concerns about these arrangements, saying that while they help students, they also take advantage of them. In some cases, the students who sign up for the school’s choice of financial institution can access financial aid quicker—which induces them to become customers. Some banks impose per-swipe fees, inactivity fees, and steep overdraft fees for the debit cards, the report says.

“Campus debit cards are wolves in sheep’s clothing,” Rich Williams, a higher education advocate for U.S. PIRG and the lead author of the report, said when it was published. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”

The universities that have card partnerships benefit from signing bonuses from the banks, such as Wells Fargo and PNC Bank, and other financial firms, such as Higher One and Sallie Mae, the report says. Ohio State, for example, signed a contract with Huntington Bank earlier this year to collect $25 million over 15 years. The schools also save money by outsourcing financial aid disbursements, which require staff time and expertise, to the banks and financial firms.

For financial institutions, the partnerships are just as attractive:

All companies, regardless of type, benefit from a variety of fees imposed on students using the cards, from fees imposed on merchants accepting the cards, from interest earned on the value of cards before their use and, sometimes, from contractual fees for services from the school.

The report cites the example of TCF Bank, which collects a $28 daily fee from students for each day an account is overdrawn, for up to 14 days.

Banks can also market their other products, such as credit cards and loans, more easily to students and acquire long-term customers through these deals. The report doesn’t go into how these deals have become so popular—spreading to schools with more than 9 million students combined—but, at least for public schools, it cites squeezed state budgets and the need for more revenue.

The deals don’t just work for the school and banks; students can benefit, too. Three years ago, in my first week as a student at Northwestern—one of 52 campuses that have partnered with U.S. Bank, according to the report—I went to a room in the student center to pick up my student ID. In a separate room students had to pass through to exit, U.S. Bank representatives were signing up students. I got my first credit and debit cards there that day.

The representatives also linked my student ID to my checking account. That allowed me to use my student ID as a debit card on campus; I can buy coffee or textbooks on campus using my student ID. U.S. Bank has ATMs around campus, so I can withdraw money whenever I want. I can take just my student ID and keys to the gym and withdraw money from the ATM by the gym entrance on the way out. “Use your WildCARD as your only card, your key to campus living,” U.S. Bank’s brochure for Northwestern students says. That’s not an oversell.

The U.S. Bank office’s location at the student center has also been helpful. If I need to deposit a check, I can do that on the way back from class.

I find it all really convenient. But I can also see why other students and parents might object to these relationships between schools and financial institutions. Is it appropriate for schools to receive money to deliver more customers to its preferred company? Students infer from the arrangement Northwestern has with U.S. Bank that the bank earned the school’s trust. And that perception, in addition to how easy it is to sign up for an account, makes students like me more likely to become customers.

“When the college has selected a student ID vendor that ‘incidentally’ offers additional banking services on the college-mascot-embellished card,” the report says, “the student’s choices are limited and the student is under the presumption that the college endorses the provider.”

But without knowing how exactly Northwestern benefits from the deal, students can’t know for sure that the school based its decision on their best interest. How do we know the school chose the bank that offered the best deal for students? We don’t. Freshmen signing up for WildCARDs during orientation week certainly don’t. All they see is the bank logo stamped on the back of their new student ID, U.S. Bank ATMs scattered around campus and the U.S. Bank booth by the room where they got their ID.

School-bank arrangements clearly narrow students’ banking choices when a school delegates to a bank the task of disbursing aid, and only students who are customers at that bank have quicker access to the money. Students in desperate need of money are forced to create an account with that bank and stick with it, regardless of whether it demands high fees or changes policies.

These deals between universities and financial institutions, the report says, “create at least the appearance of a conflict of interest as schools may be tempted to choose the arrangement that gives the school the most money rather than the arrangement that gives their students the best deal.”

Everything the report describes is legal, Williams said as it was released. Still, some members of Congress have asked 15 financial institutions to provide information on fees. Some lawmakers have also requested that the inspector general at the Department of Education examine the arrangements to see if they hurt students and adhere to federal regulations.

It’s reassuring that Congress is taking a closer look at the arrangements to determine whether they enable students to be lured into unfair credit card or loan deals. As the report recommends, universities, in turn, should disclose contracts so students can see if they’re getting the best deal.

Minjae Park

Minjae Park is an intern at the Washington Monthly.