Colleges Have a Responsibility to Protect Students’ Best Financial Interests
Students look to their college as a trusted source of information as they determine how to pay for tuition, housing, books, and other basic needs. In today’s environment, students are facing additional financial challenges coinciding with the start of the COVID-19 pandemic, rising interest rates, and inflation. Each year, millions of students look to their college when receiving federal financial aid and may receive information about financial banking products, debit cards, and deposit accounts.
Institutions of higher education can help students manage the complicated process of paying for expenses and foster good financial habits when providing information on such products. They also hold a responsibility to ensure certain products offered to their students are in the best financial interest of those students. Institutions of higher education partner with third party service providers to disburse federal aid to students and offer them basic account products. Under the Department of Education (Department) cash management regulations, institutions are required to disclose the terms of these partnerships and ensure that students are not being overcharged.
Today, the Consumer Financial Protection Bureau (CFPB) released a report detailing findings on college banking agreements related to campus debit and pre-paid cards. The Bureau found that many institutions do not appear to be meeting their responsibilities under Department regulations, are not adequately disclosing information about these arrangements, may be directing students to more costly products, and may not be conducting the necessary due diligence reviews to ensure that accounts offered are in the best financial interest of students.
The Department is concerned that not all institutions are meeting their obligations to under the Department’s cash management regulations. That is why today we released a Dear Colleague letter reminding institutions of their regulatory obligations in overseeing arrangements with financial institutions. In addition, the Department will:
- Improve the process institutions use to report their financial arrangements to the Department by integrating reporting to its Partner Connect system and will add new data fields to track information for compliance with Department regulations.
- Bring on additional staff for Third-Party Servicer oversight to monitor such arrangements.
- Continue to review arrangements with financial institutions as part of the program review process. Institutions not meeting their obligations are subject to program findings.
- The Department will look to the CFPB for information on emerging trends in the financial market and prevailing market rates that could inform which practices are in the best financial interest of students.
These efforts will take place over multiple years as the Department builds its capacity to effectively oversee college banking arrangements. Colleges offering certain financial products to students have a duty to protect students’ best financial interests. The Department and the CFPB will continue to monitor to ensure these arrangements meet these requirements.