Dems: Ban special deals between colleges and banks

Several Democrats in both chambers of Congress are urging the Education Department to crack down on colleges steering students to costly deals that sap federal student aid.

In a letter sent to Education Secretary Arne Duncan on Tuesday, the group of 23 lawmakers warned that students could be subjected to unfair practices by certain schools, meaning federal student aid could end up going toward high fees instead of textbooks.

{mosads}With the Education Department reviewing its rules on cash management for student aid, the members urged a crackdown on certain practices, like pricey debit cards offered by banks that enter into special arrangements with colleges.

“Federal financial aid is there to help students,” they wrote. “When colleges partner with financial institutions and push students into putting their federal student aid refunds into high fee accounts, it puts our federal investment at risk.”

In their letter, the members noted that a February study by the Government Accountability Office found that roughly 40 percent of all college students are enrolled at schools that have deals with banks to market debit cards to them. They argued that such a specialized deal could lead to students getting a bad deal of their own, and called on the Education Department to ensure students are able to make “unbiased” choices about their financial products.

“Colleges should be recommending the financial products that provide the best deal to students, not the biggest financial reward for the institution,” they wrote.

Sen. Elizabeth Warren (D-Mass.) helmed the letter, along with Rep. George Miller (D-Calif.), the ranking member of the House Education Committee, and Sen. Tom Harkin (D-Iowa), who chairs the Senate’s education panel.

Specifically, they urged the Education Department to bar colleges from striking special deals with banks to market certain debit cards, as well as revenue sharing agreements between colleges and financial institutions. They also said the government should ensure that students can simply direct deposit student aid as an easy option, and colleges should publicly disclose any special arrangements with banks.