In the universe of individual debt, student loans now take a back seat to nothing. It is estimated that student debt in the US now exceeds One Trillion Dollars, a figure that approaches the federal deficit and exceeds outstanding credit card debt. Debts that will follow many students for decades, ruining their opportunities for better lives and adding an additional drag on our economy, an anchor that will benefit only our largest financial institutions at the expense of small businesses who rely on consumer spending to thrive. Requiring an entire generation to repay excessive student loans will not provide the stimulus our economy needs to grow and advance. Instead it will further depress economic growth and set the stage for another financial crisis.
Sadly it isn't just the interest on student loans that is driving this burden on students, many of whom are being priced out of obtaining the higher education and technical skills they need to compete with workers in the rest of the world. Now, over 900 colleges, in concert with predatory lenders, are coercing recipients of all forms of student aid to enroll in payment/debit card programs that unconscionably extract on millions of dollars of extra fees the colleges and lenders pocket at the expense of the very poorest, unsophisticated and needy students in what is tantamount to consumer fraud.
Colleges and banks rake in millions from the fees, often through secretive deals and sometimes in apparent violation of federal law, according to the report, an early copy of which was obtained by The Associated Press. [...]
"For decades, student aid was distributed without fees," said Rich Williams, the report's lead author. "Now bank middlemen are making out like bandits using campus cards to siphon off millions of student aid dollars."
Colleges pressure students into enrolling in these programs by their colleges, who often delay receipt of student aid by check or direct deposit if students refuse to sign up with the college's preferred provider. Some colleges even require use of these payment cards as a Student ID. Once students are enrolled in these payment/debit card programs, the lenders (and also the colleges) share the "financial rewards" generated by the large number of extra fees charged to students in what amounts to a classic financial "churning" operation designed to siphon off funds intended to pay for tuition and other costs of higher education. Some of the various fees that one prominent lender and participant in this "scam", Higher One, charges students after they are locked into Higher One's college account program include the following:
- Lack of Documentation Fee: $50 (charged for failure to provide certain paperwork, a fee the US Dept. of Education has specifically informed colleges is not permitted under Federal law)
- Replacement Card Fee: $21 per card
- Fees for Using Non-Higher One ATM machines: $2.50 per transaction
- Fee for Account overdrawn 45 days: $50
- Fees for Overdrawn Account on recurring payments: $29-$38 for each occurrence
- Fees for Non-use Higher One Account for 6 months: $10 per mo.
- PIN (Personal ID number) Fee: $.50 per mo.
- Cash Advance Fee: 3.5% of advance with $5 minimum
- Official Check Fee: $8 per check issued
The Schedule for these fees is, not surprisingly, buried in the fine print of the documents provided to students when they enroll. In the rush to pay tuition and other costs, students often overlook or fail to comprehend the extra costs to which they may easily become subject. Again, we find another "market" solution to a problem that didn't previously exist. Colleges have disbursed student aid without the use of middlemen for decades. I know. My son's college (a large public university) disbursed his financial aid via a direct deposit to the school's own bank account to cover his tuition. It didn't require him to set up an account with a separate lender and make payments himself.
Yet across the country 2 out of every 5 institutions of higher education use companies like Higher One to milk their students out of every dime they can, legally or illegally. Many students have been forced to quit school before completing their education because of the high costs associated with our nation's preferred method of funding higher education. No wonder America is falling behind in global economy, ranking 48th in the world in math and science graduates.
Can it get worse? Yes. Mitt Romney could be elected President and Republicans could take control of both houses of Congress. Even if President Obama is re-elected, if Republicans retain control of the House, little if anything will be done to rectify the effect of our failure to invest in the education of our nation's youth. More jobs will be lost, more students will pile up greater debts they cannot repay and more businesses will close due to lack of a sustainable customer base. But hey, financial loan sharks like Higher One will do just fine.