By: Martha C. White
May 1, 2012
Prepaid debit cards are becoming the de facto debit cards for a growing number of people these days. This is partially because issuers are promoting the heck out of them and partially because people, especially younger people, view them as preferable to a traditional bank account. As a result, a small number of colleges are experimenting with -- and profiting from -- hybrid student ID cards that are also prepaid debit cards. Is this a clever way for cash-strapped schools to avoid socking students with yet another tuition hike, or are colleges doing their students a disservice?
There are a couple of reasons why these cards got popular in the first place: Issuers like them because there's no lending risk (you're spending your own money) and because they can earn higher interchange fees from merchants. People told interviewers in a recent focus group they like prepaid cards because they like the built-in discipline, and because they really, really hate bank fees. They also griped about prepaid debit card fees, but said card companies present them in an understandable, up-front way, which banks don't do.
The concept of combining a college student ID and a debit card isn't a new one. Some schools have offered cards linked to a checking account at a certain bank for a while now, but prepaid cards add a new wrinkle.
Prepaid cards tend to be heavy on the fees, although the ones offered through colleges tend to be better than average in this regard. But there are still some fees, such as for use of ATMs, that students wouldn't have to pay if they used a traditional debit card and stuck to using that bank's ATM network for withdrawls.
Beginning this summer, for example, North Carolina State University will offer a hybrid ID-prepaid debit MasterCard in conjunction with U.S. Bank. Previously, the school had a partnership with another bank that provided a traditional debit card feature tied to a checking account.
Called the Wolfpack One, the new card comes in two versions, regular and deluxe. (It's likely most students will get the deluxe version, since that's the only one that permits funds to be loaded from sources outside of campus, such as a parent's bank account or direct deposit from an off-campus job.)
"N.C. State will receive 75 cents per month for each open and active deluxe prepaid card account," University spokeswoman Jennifer Gilmore says via email. The school has approximately 34,000 students, so even if only three-quarters of them have a deluxe card, that's more than $19,000 a month in revenue for the school.
According to the Wall Street Journal, other banks such as SunTrust also offer campus ID-prepaid hybrids, and it predicts the practice will grow.
In November, the University of North Florida began offering students the option of an American Express prepaid account through its student ID cards, called "Osprey1Cards." Neither American Express nor the University of North Florida would comment on whether or not the school receives any money from this partnership.
While a debit card is certainly an improvement over a credit card, it's worth asking if schools have the best interests of students in mind when they make these deals. It's certainly possible that the additional revenue keeps schools from having to raise fees or cut services elsewhere, but students have a right to know if their convenient ID cards are a moneymaker for their school.
If there's one good thing to say about prepaid debit, though, at least it's better than credit cards, which are still being marketed to college kids heavily, according to new research conducted by Jim Hawkins, professor at the University of Houston Law Center.
Hawkins found that credit card companies are still plying students with sign-up gifts and qualifying for cards without any verification of their income. His study found that 68% of students under 21 got credit card offers in the mail. Even worse, 27% of students under 21 applying for cards listed student loans as "income" to pay for them.
"I found that many of the CARD Act's student and young consumer provisions have not affected credit markets in the ways the Act's proponents had hoped," Hawkins said in a statement. When even federal regulations fail to deter banks from targeting students, it's obvious they need all the guidance they can get to grow into fiscally responsible adults. The question is whether or not school-sanctioned prepaid debit cards help or hurt in this goal.