Banks are capitalizing on students' federal aid money. But the Dept. of Education doesn't want them to get away with it.
If you were attending college in the early 2000s, you probably remember walking through campus and being bombarded with offers from banks who were giving away free T-shirts, Frisbees, and student checking accounts.
Banks like Chase, Citibank, and Bank of America know that college campuses are ripe places for recruiting customers. They know if they can persuade an 18-year-old student to bank with them, they’ll most likely get a customer for life. As the saying goes, “Get them while they’re young.” Failing that, milk them for fees while you can.
But the Department of Education is cracking down on some of these banks and their university partnerships. It’s proposed a series of regulations that “provide tougher standards and greater transparency surrounding agreements between colleges and companies,” according to a statement released by the department.
In many cases, students are receiving their federal student aid through these bank accounts — often the only bank available on campus. Many students don’t have cars or don’t know to compare banks, so the banks can load up the fees and get their cut of that financial aid.
The department cited these reasons for the proposed tightened regulation:
- Students don’t have enough choices in the “financial products marketplace,” including limited options for bank accounts;
- Lack of transparency surrounding college card agreements;
- Third parties allegedly using students’ private information to sway them toward one bank or another;
- Evidence that students are getting charged “unreasonably high fees” that result in the loss of their federal student aid money.
The Department of Education is hosting their proposals on this site, which will be open to the public for comment over the next 45 days. But if you don’t want to lose your hard-earned money in the meantime, here’s what you can do…
Try opening an online bank or credit union
The advantages that an online-only bank has over a tradition brick-and-mortar bank are more numerous than you’d think. For one, because they don’t have to rent office space or hire traditional bank tellers and security, they can offer a lot of free services that other banks charge for, according to Morgan Quinn, a writer for GoBankingRates.
Two banks to look into: Simple bank and Ally Bank. Both are online-only, include a free checking account and no overdraft fees. Funds can be deposited through direct deposit, online transfer, or through a mobile app.
Additionally, credit unions are a great option for millennials. They’re far more likely to offer free checking accounts, greater transparency, better customer service, and lower fees overall.
Search around for the best student credit card
Student credit cards are all over the place. Some are actually good, if you’re responsible. But others contain hidden fees you may not notice until it’s too late.
If you’re looking for a card that rewards you for responsible credit use, check out the Journey Student Credit Card issued by Capital One bank. You’ll get 1 percent cash back on all purchase, and a 25 percent bonus on the cash you earn each month when you make your payments on time. The Discover It Card for Students lets you earn 5 percent cash back with certain merchants, and you’ll never be hit with a penalty interest rate.
Above all, make sure your first student card has no annual fee. And if you plan to study abroad, choose one with no foreign transaction fees.
Don’t let your bank walk all over you
Banks impose dumb fees on students and other customers all the time. Overdraft fees, out-of-network ATM fees, and insufficient fund fees plague customers who don’t pay close attention to their bank activity or think they don’t have the right to speak up.
But there are ways around this. You can avoid ATM fees by getting cash back when you’re at the grocery store or at CVS or Walgreens. Almost every modern bank has some kind of account alert system, whether it’s through email or text messaging, that alerts you when your bank account balance dips below a certain amount. With these alerts, you’ll be able to avoid any insufficient fund fees or overdraft fees (the CFPB said that the average total of accounts that were overdrawn in 2011 was $225.)
Above all, don’t be afraid to speak up. It can be intimidating, especially as a young person, to call a banker and ask them to waive a fee, whether it be from a credit card, your bank account, or a loan. But a 2013 study from Credit.com found that 44 percent of customers have had a fee reversed because they asked or complained — so it never hurts to ask.