Many college-sponsored financial products have higher fees and worse terms and conditions compared to typical market products according to a report issued Tuesday by the federal consumer financial protection agency.
According to its 2023 student bank report, the Consumer Financial Protection Bureau (CFPB) found that many colleges continue to employ marketing strategies that may mislead students into accepting products that may not be the best choice for them.
The bureau noted that many colleges offer sponsored and co-branded financial products to students and alumni, such as deposit accounts, credit cards, and prepaid cards. The agency alleges that students may be likely to accept their school’s recommendation of a bank account or credit card when they arrive on campus. The agency asserted that means colleges and their financial institution partners may not face competitive pressure to lower fees or provide low-cost products.
“These arrangements can be lucrative for schools, as financial institutions pay tens of millions of dollars every year to colleges and universities, including flat-fee marketing deals and per-signup kickbacks,” the agency said.
The report contends that although most large banks have moved away from charging overdraft and non-sufficient funds (NSF) fees in recent years, some of the sponsored deposit accounts in the report do charge students those fees. “Thus, students who follow their school’s advice may be steered into accounts that cost them much more than what they would pay in the open market,” the report asserts.
The report states that average fee burdens vary by type of institution. It states that accountholders at Historically Black Colleges and Universities (HBCUs), for-profit colleges, and Hispanic-servicing institutions (HSIs) all pay higher-than-average fees per account.
And the fees add up, the report notes, with students facing “unexpected” fees at graduation. “Some financial institutions impose additional fees when a student graduates or reaches a certain age, relying on “sunset” clauses in the products’ terms and conditions,” the report states. “Students who sign up for a product marketed as free may thus end up being charged monthly maintenance fees, or overdraft and NSF fees they did not anticipate.”
CFPB Report Finds Many College-Sponsored Financial Products Charge High and Unusual Fees