These types of things always scare me when offered to young adults who are just learning financial discipline. I would have no problem if the excess money went to the college and paid for books and supplies but to allow the money to be free cash is a bit dangerous under 10 year loan terms.
Is this a big part of the average student loan market? It would seem to me that not too many kids would have excess loan funds available for this type of thing. If so then would it not be centered around those colleges on the cheaper end? Like Community colleges that charge less. If so, then it seems to be targeted to a vulnerable segment of our society.
I always had excess loan money. It went to my bank account. I’d hate it to go to a card since most of my bills are taken directly from my bank account. The apartment I lived in only took checks so that wouldn’t have worked.
This doesn’t seem like a good plan for many students. There are a LOT of apartments that won’t take cards for rent.
It’s a neutral idea for very frugal students (my kids are like this). But generally speaking, I can see huge problems with this plan for the average person who thinks a card with money on it is an invitation to buy.
Excess loan/financial aid money is very common. Financial aid includes living expenses. If a student lives off campus then the excess money would of course have to be paid to them so they could pay their rent etc. Both my kids lived off campus after the first year. Both used their financial aid to help pay for it.
Only my son had the prepaid card issue. He had to fight the card company to find how to get it paid direct to his bank account. He had no desire to have it on a card. You can get it transferred but they were reluctant to convey the information.
This is not exactly news. My son has been out of school 8 years and his school introduced the card thing a couple of years before that (much to his annoyance).
When I was a post HS student in 1975-82, I had excess loan money put into my account. When I graduated, it was enough to pay off my loan because I lived below my budget. I would not have wanted those funds on a card and was glad it was just placed in my bank account to pay off ed expenses as needed. I also would have done what was needed to have the card switched into funds in my savings acct but am sure many students don’t want the hassle and just spend it (or worse lose the card) and have to repay it.
I work at a graduate school, and our students use loan refunds to pay for living costs (they cannot work during our program, due to the time demands). I dislike this idea very much, because landlords do not accept prepaid cards for rent payments. The government has some additional ideas that are very concerning … for example, they are proposing 'aid like a paycheck," with any refund amount paid out weekly or monthly. Ummm … why should a student pay interest on loan funds he can’t access?? Our students have to purchase supplies for their work, and these are not needed on a weekly or monthly basis - they often have to buy them at the start of the semester. Rent may well be due before the “paycheck” comes (of course, if the aid has to be on a prepaid card, I guess that is a moot point).
There are some good things being proposed in financial aid land, but there are also many new things being proposed that are not good. Capping federal grad loans at $28.000/year is another scary proposal. I could go on & on. And don’t even get me started on the additional regulations being proposed for financial aid (this on the heels of a Federal Student Aid conference where we were told that the government wants to get rid of regulatory burdens on financial aid offices).
My daughter had 3 choices for money over her billed costs to be given to her - deposited into her/my account, a card, or a hard cut check. We went with the money to be deposited into my account (the first year it was a refund of her meal plan which I had paid for, and then needed to pay to her sorority house). We didn’t take the card because there is a service fee at most places you use the card, like an ATM.
It works well. This week she got a $650 refund, and I then transferred it into her account. Then the school screwed up and refunded $1555 for a class, then immediately (the same day) charged her $1555. All she did was drop one class and pick up another. I now have to repay the school. If that money had been put on a card, she would have had to pay a service fee to repay the school the money we’d already paid!
Of course, there is always the possibility she would have spent the money the second it hit her card. She’s not good with money.
This might be a way for the banking industry to gain access to student buying habits bu allowing them to track what is purchased with the cards. If cash is given then the banks do not know what the students are buying and cannot sell that information to advertisers. So to the banks this is lost opportunity that the government can help them access and unlock.
This has been going on for sometime and it stinks. The banks have rules regarding students accessing those prepaid cards and many times they are charged for accessing their money at ATMs.