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Financial Aid Loan "Debit" Cards Replacing Credit Cards on College Campuses

Soon after they arrived on campus, more than a million college students across the country received a welcome letter and a plastic card bearing a MasterCard logo from a little-known company called Higher One:

"Meet your new best friend on campus," the letter reads. A school's emblem is featured in the letterhead - and even on the card - and students are urged to activate their accounts quickly.

This is not a credit card offer. Instead, it is a new type of plastic that allows students to easily access money from their college loans everywhere from the bookstore to the bar with the swipe of a card. These cards, however, are not subject to the sweeping reforms that took effect this year and sought to curtail similar relationships between colleges and credit card issuers. Meanwhile, students complain that the loan cards are riddled with high fees, and they have organized protests at several campuses.

"That's really just not the best thing to be doing with our financial aid," said Shane Gerbert, who helped lead the campaign against Higher One at the University of North Dakota. "They're siphoning it away little by little."

But college officials contend that the loan cards make life much easier for administrators and students, and that they can provide an extra bit of income for cash-strapped schools.

Students often take out college loans worth more than the cost of tuition so they can pay for books, housing and living expenses. Schools are responsible for distributing the difference, often resulting in long lines of grumpy students waiting for their checks in front of the bursar's office.

Enter Higher One, which offers to take over that cumbersome process for colleges. The company also sets up accounts for students where the loans are deposited. Once activated, Higher One's product acts as a debit card, allowing students access to loan money left over after tuition.

Higher One charges students a $19 monthly penalty for accounts that aren't used for nine months, a practice now banned for credit cards.

Higher One says it is not coercing students to use its cards. Students can opt to receive their loans by check or through another bank, though they must go through Higher One's site to make their selection. On average, nearly half of students at each college sign up for the Higher One account, the company said. At schools that have used the program for several years, the adoption rate is closer to 70 percent.

Source: Washington Post
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/03/AR2010100304352_pf.html