02.14.14 | Do Colleges Provide Adequate Disclosures to Student Consumers?

Posted in College Life, News, Parent Advice, Student Credit by David Levy

Do Colleges Provide Adequate Disclosures to Student Consumers?The U.S. Government Accountability Office (GAO) has released a study that describes the growing number of colleges and universities who have entered into arrangements with financial institutions to market bank accounts, prepaid cards, debit cards and other financial services (including disbursing financial aid) to students. While the Consumer Financial Protection Bureau (CFPB) has encouraged financial institutions to voluntarily fully disclose these agreements on their websites, the CFPB found that nearly a third of public colleges and universities fail to do so.

Schools argue that these college-lender agreements offer convenience for students and, potentially, help lenders to establish long-term financial relationships with students. However, the GAO remains concerned about how some of the financial agreements impact students, their families and colleges.

For example, the GAO found that many schools encouraged students to choose the college-lender product rather than providing unbiased, neutral information to help student consumers select the financial product that best meets their needs. The GAO speculates that these endorsements on the part of colleges and lenders may be influenced by incentives the schools receive as part of the school-lender agreements. These incentives may not be adequately disclosed to students.

The GAO cites an instance in which a lender provided $25 million to a school for the use of the college’s logo on affinity credit cards. Such a practice is currently banned for student loans but not for credit cards. In another example, a college is paid an up-front fee for endorsing the lender’s financial services on campus. (Additionally, the college can receive a bonus payment for each new student who signs up for the services.) The GAO report also cited instances in which college card fees for purchases using a personal identification number were higher than for similar debit card products provided by banks.

The CFPB notes that while “many financial institutions offer good products at competitive prices,” colleges, universities and lenders who have financial arrangements should disclose these relationships and provide unbiased information to students. Without more transparency about these types of relationships, student consumers are prevented from making informed decisions about what is in their best financial interest.

The U.S. Public Interest Research Group (U.S. PIRG) published a report, The Campus Debt Card Trap, which identified high fees and inconvenient free ATMs as key issues.

Both the U.S. General Accountability Office and the Consumer Financial Protection Bureau have indicated that they will be addressing these issues as they develop new rules. The U.S. Department of Education will also be revising the regulations concerning disbursement of federal student aid funds through debit cards.

In the meantime, students and their families are encouraged to review the Consumer Financial Protection Bureau’s Managing Your College Money and consumer advisory for information on accessing student loans and scholarships. Students and parents who wish to complain about a student loan, checking account, or credit card, may submit a complaint online or call 1.855.411.2372.

04.16.13 | When to Get Student Loans

Clock Tower in SpringFamilies everywhere are currently sweating over financial aid award letters, trying to decipher aid and make the huge decision about which school is the right choice for both the student, and family finances. However, once the college decision is made, there is still a lot to do, including applying for student loans!

To help families through this award letter season, here is a breakdown of how and when to accept—or apply for—all types of student loans.

Perkins and Stafford Loans

When to Accept: April-May for Fall semester
How: For these loans, students can simply accept their loan amounts through the financial aid office. To finalize the acceptance and before they can receive the loan funds, students must complete a Master Promissory Note (MPN) online at StudentLoans.gov and complete an entrance counseling session as directed by the school.
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04.11.13 | Parents, 5 Financial Lessons for Your College Student

As a parent, you are faced with one of life’s greatest challenges: preparing your child for financial responsibility. When your child leaves home for college, they will explore their independence in more ways than one. Learning the financial facts of life can be confusing and can take years. You can help prepare your child for financial independence by sharing these important lessons.

1. Create a budget
The first step to financial responsibly is by making sure you do not spend more than you have. You can empower your child by helping him/her establish a budget for college. Consider how much income the student has (including loans, scholarships and financial aid), then add up the items you are budgeting for to see if the student can afford them. Here are some things to consider budgeting for:

  • Tuition
  • Food
  • School supplies
  • Laundry
  • Phone
  • Entertainment
  • Transportation (cabs/bus)

Managing and sticking to a budget will teach your child to make good financial decisions and will provide them with a sense of control.

2. Keep track

Creating a budget is half the battle – sticking to it can be the hardest part. A good tip to share with your child for sticking to their budget is to keep track of all spending. There are a variety of tools available besides bank accounts that can help with money management. Mint.com and LearnVest are two great tools that allow you to organize your finances, set a budget and alert you when you’re getting off track.

3. Be smart about plastic

If your child does not already have his/her own bank account, this will be the first step. Once they establish their own checking account, they are ready to determine how they will pay their bills. There are a variety of different payment options. The most commonly used payment method for college students are debit cards, since there is debt risk associated with credit cards. Take the time to explain the advantages and disadvantages to using both:

Debit Card Credit Card
When is money taken from account? Immediately- automatic deduction from account At a later date- Money is borrowed with a line of credit.
Can you accrue debt? No- but you can overdraft Yes
Can you establish credit history? No Yes- build a credit score as you pay bills
Are there rewards? No Yes- earn points/rewards when you make purchases. Used to get cash back, discounts, miles, etc.
Are there risks? Minimal- easier to keep track of funds since money is automatically deducted for each purchase. Higher- more difficult to keep track of spending because you pay back what you borrow at a later date. Easier to accrue debt.

3. Pay bills on time

It is important to explain to your child that not paying bills on time can have a negative impact on their financial future. Explaining the importance of establishing a good credit history early in life is an invaluable lesson.  Your child will need to have good credit history in order to qualify for a private student loan if they need more funds for college, buy a new car, apply for a job or take out a mortgage for a house later in life. It is important to explain to your child that in order to establish good credit, they must pay their bills on time and in full.  Even a late phone bill can negatively affect their credit score.

5. Borrow what you need

If your child has taken out a loan for college, it is important to stress that they will need to pay back that money, along with the interest accrued, once they graduate.  With that said, it is key to emphasize that they should only borrow what they need or they will quickly find themselves under mountains of student-loan-debt situation after graduation. If your child finds him/herself in a situation where they need more money for school, there are other ways to fund their education than borrowing such as finding a job and applying for scholarships. If they do borrow, make sure to exhaust all federal loan options first, especially subsidized Stafford loans, which do not accrue interest while a student is in school.