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Student loan debit cards draw complaints, lawsuits [The Orange County Register](Orange County Register (CA) Via Acquire Media NewsEdge) Oct. 05--Steven Meyer, a student at Orange Coast College, opened his mailbox in August to find a bright green envelope holding a bank debit card. The letter surprised Meyer, an Afghanistan war veteran who lives in Long Beach. He had not ordered the MasterCard, which was emblazoned with his school's logo and name. He soon realized that the college had given his name, address and other information to a Connecticut-based company called Higher One Holdings. The company earns money by disbursing student grant and loan monies for colleges and by charging students fees on their accounts. Meyer and other students say the company is trying to mislead them into activating the debit card and opening a corresponding checking account, which has cost some students hundreds of dollars in fees. Among those charges are a $2.50 fee for checking their balance at an out-of-network ATM, a 50-cent levy for each card purchase and $20 to replace a cracked card. "There are some questions that definitely need to be answered," Meyer said. "This is federal financial aid money. The country is under the impression that this money goes to students and not to a corporation in fees." Coast Community College District, Long Beach City College, North Orange County Community College District and South Orange County Community College District are among the local colleges that have hired Higher One to supply debit cards to students in recent years. College officials say the cards help students by allowing them quick access to their financial aid. Higher One says it is saving schools money by eliminating the work that college staff once did to process and mail the checks to students. "We really care about students and the struggle they go through," said Shoba Lemoine, a company spokesperson. "We see ourselves as part of the solution." She said the company makes it clear in written instructions that students have options, including having their financial aid deposited into their own bank account or receiving a check. But a review of Higher One's agreements with several local colleges shows that the some aspects of the deal could lead students to believe the company is the school's official banking partner and that they have no choice but to open an account with it. The company is allowed to use the college's logo on the card and in its advertisements. The contracts also require the schools to promote the card to students, including official mailings. Jon Meyer, Steven's brother, said he believed that he had been automatically assigned a Higher One account when he received his card from Long Beach City College two years ago. "In the first month," he said, "I had over $100 in added fees." Since the fees are often paid out of federal loan money, many students will be paying interest on the amounts for years. Higher One is part of an industry that has flourished as the government has increased federal student aid to help pay for the skyrocketing cost of college tuition. Last year, Higher One pulled in $198 million in revenue. The company does not disclose how much of that comes from students, Lemoine said, other than saying "less than half" its revenues were student fees. The company earns millions of dollars more from retailers, which pay a fee each time students use the card to make a purchase. It also receives money from the banks it partners with, which earn interest on the students' deposits. After expenses and taxes, Higher One earned $37 million in profits last year. A growing number of colleges have hired Higher One despite several recent lawsuits filed by students around the country, who claim they were misled and charged hidden fees. The company says those claims have no merit. Last year, Higher One paid $11 million to 60,000 students to settle claims by the Federal Deposit Insurance Corporation that it had used "unfair and deceptive" practices. The agency found, for example, that the company had charged students multiple overdraft fees on a single transaction. The company says it no longer charges such fees. Lemoine said the company teaches students how to avoid its fees. For example, students can avoid the 50-cent fee for each debit card purchase, by telling the clerk it will be a credit transaction and signing the sales slip rather than punching in their PIN. They can avoid the $2.50 charge for withdrawing their financial aid money at an ATM by using the company's machines on campus. But many campuses have only one Higher One ATM, which is often not available during weekends and school breaks. Jon Meyer said he often had no choice but to go to another company's ATM. He said the ATM at the main campus in Long Beach is in a part of the student center that is locked early each night. On days when financial aid money is released, he said, the line for the machine can be 50 or 60 students long. Gregory Peterson, the college's vice-president of student support services, agreed that the line could be lengthy. He said the ATM had to be locked during certain hours because it was a free-standing kiosk, not bolted to the wall, that could be easily damaged without proper security. He said the school hired the company to supply debit cards because officials found that many students did not have bank accounts. Those students waited for their checks to be mailed, he said, and then paid high fees at check-cashing stores. This is not the first time that financial companies have been criticized for targeting college students for new business. After the recession, Congress passed a law to stop banks from aggressively promoting credit cards to students. The law was spurred by concerns that students were leaving college burdened not just with school loans, but also credit card debt. But that 2009 law did not apply to debit cards. Higher One encourages students to use its card for indulgences at the mall just like credit card companies have done. In promotions, the company offers its student customers discounts on everything from Clinique cosmetics to kate spade hand bags. Some of the company's contracts that the Register reviewed require college officials to encourage students to use the card. "Whether it's groceries at the supermarket, or new jeans at The Gap -- the easiest way to pay for it is with your Saddleback Card," says a promotion on Saddleback College's website. With the card loaded with money from Pell grants and loans, Higher One's push for shopping can prove tempting. "I love the program because I don't have to go out of my way--it actually rewards me for shopping at my favorite places," said Melissa Murphy, a student in Florida, who the company quoted in a press release announcing its cash back awards program. Lemoine said that most of its customers have used a bank account before and know how to shop responsibly. She added that the company's retail discounts save students money. To promote its program to colleges, the company builds "long-lasting personal relationships" with school officials at conferences it hosts each year, according to its annual report. Higher One also uses word-of-mouth marketing, the report explained, where it gets students to promote the card to friends. For example, students can receive a $25 gift card for writing about Higher One on websites. On September 26, a group of Congressional Democrats sent a letter to Higher One and seven other companies demanding information about their college debit card programs. The lawmakers, who include California Congressman George Miller and Massachusetts Senator Elizabeth Warren, asked how much the companies had received in student fees and requested a list of gifts they had given to college officials in the last three years. "When students are forced to pay unnecessary or exorbitant fees that bolster bank profits, it makes college more expensive," the lawmakers wrote, "particularly when those fees eat up financial aid dollars that are intended to help students pay their bills." ___ Contact the writer: Contact the writer: [email protected] ___ (c)2013 The Orange County Register (Santa Ana, Calif.) Visit The Orange County Register (Santa Ana, Calif.) at www.ocregister.com Distributed by MCT Information Services |