Higher Education’s Ties with Banks, Impact on Students

A growing number of U.S. colleges and universities, including the University of Illinois, have arrangements with banks, providing student ID’s that also function as debit cards. Earlier this year, a consumer group cited concerns with some of them, and now members of Congress are raising their own questions.

The Illini Union Courtyard café on the U of I’s Urbana campus is as quiet as one might expect for mid-July, with only a short line at Espresso Royale. It is hard to find a U of I student studying or reading who doesn’t have a TCF Bank account. Senior Joshua Dotson got his account when he transferred to the U of I two years ago. He said he signed up for just one reason.

“While you’re a student, you have to use a lot of coin-op laundry,” Dotson said. “Easy way to get quarters.”

Sophomore Desmond Shuford said he likes having the free checking account, but wishes the bank had provided more literature at the start.

“I wasn’t really informed as far as overdraft fees, and that kind of got me at the beginning,” he said “It was actually quite a bit, so I had to go in there and get that handled.  Now, everything is pretty good. You know, you live and you learn. You learn as you go.”

In its May 30 report, the U.S. Public Interest Research Group (PIRG) estimates that over nine million students have student ID’s that also function as debit cards.

In a report called ‘The Campus Debit Card Trap’, PIRG says that includes 32 of the 50 largest 4-year schools. The consumer group said such an arrangement gives the impression that a school is in some way endorsing the bank.

“Is the student really getting a clear, unbiased opportunity to evaluate what banking products could be best for them?” said Rich Williams, who is a higher education advocate for PIRG.

“Instead of seeing this already linked account, and perceiving that the school has either negotiated a really good deal for the student, or somehow vetted TCF amongst other banks,” Williams said. “Really, what we’re seeing is that might not be true at all.  It might be based on what bank was able to give the most money to the school.”

Jill Wilberg is the director of the U of I’s office of Treasury Operations. He confirms that there is an undisclosed financial commitment from TCF to the U of I, but he maintains that is not the sole reason the university’s Urbana and Chicago campuses agreed to a deal with TCF in 2007.

“The most important part that we are focused on is financial literacy for one, was a huge component,” she said. “And all the banks did offer that, it was just a matter of which one offered the best.  And again, what was the best account for the students.”

PIRG said some universities benefit every time a student swipes their debit card But Wilberg said that’s not the case at the U of I, where revenue from the bank is determined by the number of active student accounts. Wilberg said those funds are funneled back into operation of the card program.

U.S. Sen. Dick Durbin (D-Ill.) is among seven members of the Senate calling on schools to end what they see as unreasonable fees, such as PIN debit usage fees, ATM balance inquiry fees, inactivity charges, and unreasonably large overdraft fees.

A letter the Senators signed last week to six higher education groups also sought to establish guidelines intended to make the bank card programs fair, transparent, and reasonable.

Christina Castro, TCF Vice President of Campus Banking, said TCF Bank promptly replied with a letter of its own.

“We received it on June 11th, and June 18th we responded to all the allegations and copies of our agreements,” Castro said. “So we don’t have anything to hide, because we’re not doing the types of things addressed in this report.”

Castro said unlike other banks’ arrangements with some universities, TCF’s checking account for University of Illinois students does not include a monthly maintenance fee, inactivity fees, or account closure fees. Its arrangement with the U of I is similar to agreements with Northern Illinois University, the University of Minnesota, St. Cloud University and the University of Michigan.

But TCF’s arrangement with five banks is small potatoes compared to PIRG’s biggest concern - partnerships between other financial institutions and universities that PIRG said can jeopardize student aid, by charging questionable fees on accounts set up to receive student aid payments.

The consumer group calls financial firm Higher One the ‘biggest player’ in these arrangements. PIRG said upon reaching an agreement with a university, Higher One recruits students to open accounts with the clear intent of raising revenue by charging fees on those accounts.

PIRG’s Rich Williams said Higher One is one in a list of companies that require students to go to a website to decide how they’ll receive financial aid.

“Of course, they use that opportunity to heavily market their own preferred products, and set up sometimes physical barriers from students choosing an option that many would think should be the default, such as their own checking account,” Williams said. “For example, it takes a couple extra days, sometimes a week to two weeks, to get your money by check or into your own account.”

These arrangements with financial firms have prompted complaints from bank regulators and students at schools in Portland, Oregon, and Bellingham, Washington, and a student lawsuit out of Southern California. Among the specious fees PIRG highlights, is a $50 lack of documentation fee, which the U.S. Department of Education notes violates federal rules.

While TCF Bank doesn’t charge ‘lack of documentation’ fees to students, it does charge overdraft fees, just like with any checking account. So, ultimately, it is up to students to be responsible with their money, and manage their own account.

Besides, as every student at the Urbana campus Courtyard Café explained, any student that doesn’t want a TCF account could simply say ‘no thanks.’