Students Beware: College Credit Cards May Not Be the Best Deal
Students considering signing up for a credit card offered by their college or university should think twice, according to a recent report by the Consumer Financial Protection Bureau (CFPB). Contrary to popular belief, these financial products often come with less favorable terms and higher fees compared to typical market offerings.
The CFPB report revealed that many students were surprised by monthly maintenance fees, overdrafts, and NSF fees they had not anticipated. Some financial institutions hid additional fees in the fine print, particularly targeting students who graduate or reach a certain age. These fees, known as sunset clauses, can catch students off guard, and once a financial product is integrated into their lives, they are unlikely to switch providers.
Director of the CFPB, Rohit Chopra, warned that schools should scrutinize the fees and terms of the products they endorse to their students and alumni. With over 140 partnerships between credit card issuers and educational institutions identified by the CFPB, it is clear that financial institutions are profiting from these arrangements. Between 2021 and 2022, more than $17.3 million in revenue was generated from over 650,000 student bank accounts. In return, colleges and affiliated organizations received over $19.6 million, with an average annual payment of approximately $138,000 per issuer.
The report also highlighted the disparities in fees charged to students. Some were hit with overdraft fees as high as $36, with Historically Black Colleges and Universities (HBCUs), for-profit colleges, and Hispanic-serving institutions (HSIs) experiencing higher-than-average fees. Shockingly, the CFPB discovered that 79% of combined overdraft and NSF fees were paid by just 9% of consumers who incurred more than 10 such fees per year, resulting in a median cost of $380 in fees annually.
To protect students, Congress enacted the Higher Education Opportunity Act in 2008, which aimed to limit the risks associated with marketing financial products on college campuses. Additionally, the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 specifically regulated aggressive credit card advertising directed at students. However, the CFPB suggests that some colleges continue to market these products in ways that mislead students, such as through online and email advertisements.
In addition to credit card concerns, the CFPB’s report shed light on extra fees imposed on college tuition repayment plans. While marketed as interest-free alternatives to student loans, these plans often come with hidden costs. The report revealed that nearly 4 million students opted for tuition payment arrangements each term. However, 89% of schools charged enrollment or set-up fees, averaging $37 but occasionally reaching as high as $250. Furthermore, 60% of schools charged non-sufficient payment fees, averaging $29 per instance, while 44% imposed late fees, costing an average of $46 per late payment.
The Director of the CFPB urged colleges and universities to reevaluate their repayment plans and avoid burdening borrowers with high fees and coercive debt collection practices. The consumer watchdog also encouraged students to consider personal loans for debt consolidation and finding private student loan options with more favorable rates.
It is crucial for students to be well-informed and cautious when considering financial products offered by their schools. Shopping around for the best rates and understanding the terms and conditions can save students from unexpected fees and financial difficulties down the road.
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