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US Renew News: Where Facts Make a Difference (Check Out Our News Coverage Below)

February 8, 2018


The Department of Education released a Pre-Solicitation Notice in January that gives details on a new payment card program for federal student loan excess fund disbursements. Starting this spring a pilot program with approximately 100,000 students will test this new system. Under the pilot program, federal student aid (FSA) would be directly disbursed to the college or university, as it is now, but instead of student receiving their refunds via direct deposit or check, the funds would be placed onto the FSA Payment Card. A. Wayne Johnson, the former Chief Operation Officer of Federal Student Aid, said the payment cards would give the government control over “when and where and how much” federal loan money was spent. “It will have real-time coaching for people in terms of, ‘you’re about to spend this money on this particular matter — it’s going to have this effect on your student loans.’”

The FSA cards are part of Education Secretary Betsey DeVos’ plan to modernize and streamline the student financial aid system. FSA serves 40 million people, has more than $1.3 trillion in outstanding student loans, and processes 50 million disbursements that total more than $125 billion. The idea behind the FSA prepaid card is to offer a cost-efficient way to give students access to a bank-like product. Employers and family members would also be able to load money onto the card. 


U.S. Senators Richard Blumenthal (D-CT ), Sherrod Brown (D-OH), Dick Durbin (D-IL), Jack Reed (D-RI) and Elizabeth Warren (D-MA) wrote a letter to then COO of Federal Student Aid, A. Wayne Johnson,  asking 19 questions about the FSA Payment Cards. They raised concerns about the program stating, “While we support efforts to improve the financial aid distribution process, we have serious concerns about your proposal given the poor track record of such cards in the past. History shows that in the absence of strict oversight and safeguards, these card programs can leave students and taxpayers vulnerable to exploitation.” In 2012 the U.S. Public Interest Research Group released a report showing that financial institutions that issued student IDs or prepaid cards to students through contracts with colleges were taking advantage of their access to student data. The report found that after a few years of aggressive marketing to the students using the prepaid cards and student IDs 70-80% of students were using their financial services. The cards also had per-swipe fees, inactivity fees, overdraft fees, ATM fees, and fees to reload the cards which means students were paying fees to access their financial aid. The colleges received monetary benefits from these institutions based on students using campus debit and prepaid cards.

In 2015, the Department of Education released new regulations to protect students from being exploited by campus debit and prepaid card programs. These regulations required that education institutions give students choices about how to receive their financial aid, ensured that students were not charged excessive fees when accessing payments of their federal student aid, and prohibited schools from requiring students or parents from open specific accounts to access their federal financial aid. The regulations also limited the sharing of student information and data with third-party servicers. With the new FSA payment cards, the financial services companies would own student data including spending patterns.

There is concern that similar predatory behavior from financial institutions could exploit students like they did prior to the 2015 regulations. Lauren Saunders, associate director of the National Consumer Law Center said of the new program and pre-solicitation notice that, “It could be that there are companies that would find this attractive, not so much for the card itself but for the opportunity to pitch other products or try to develop brand loyalty from customers.”

Engagement Resources

  • Student Debt Crisis—A nonprofit dedicated to reforming student debt and higher education loan policies.
  • National Consumer Law Center—A nonprofit that works with other nonprofits, legal services organizations, private attorneys, policymakers, and federal and state government and courts to stop exploitative practices.
  • Inside Higher ED—A leading digital media company serving the higher education space that prides itself on speaking as an independent voice.

This brief was compiled by Rebecca Leclerc. If you have comments or want to add the name of your organization to this brief please contact, rebecca@usresistnews.org.


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