Each generation, more young people pursue the dream of higher education. As a result, colleges and universities must adapt to handle the logistics of more students and increasing administrative demands. One hurdle for these institutions is the distribution of Title IV funds, which comprise federal loans, grants and other forms of financial aid.
Unfortunately, the Department of Education issued a proposed rule that has the potential to not only increase the logistical burden of distributing these funds but also could increase the cost to do so.
Title IV funds are a critical component of ensuring that all students, regardless of background and socio-economic position, are able to access higher education. Schools are responsible for applying the appropriate amount of Title IV funds to tuition and fees and then distributing the remaining amount to each individual student. For loans alone in the first quarter of 2015, schools made 12.5 million disbursements, according to data from the Department of Education.
For many years, one way that schools have eliminated unnecessary costs is by giving students the choice to receive funds via a prepaid card. By partnering with prepaid providers, schools can establish an affordable and efficient process for the electronic disbursement of funds and can typically save about 90 cents per disbursement in comparison to paper checks, according to the U.S. Treasury. In the first quarter of 2015, that could equal a cost savings of up to $11.5 million for colleges and universities for the disbursement of loans alone.
These partnerships are also incredibly beneficial to students. Many freshmen embark for college without access to traditional banking services, such as a checking or savings account. Prepaid cards offer a safe and convenient way to receive funding that is not reliant on access to brick and mortar financial institutions. These cards can then be used to purchase books, meals and other college necessities. Many can also be loaded with additional funds by the student or parent.
In many cases, these partnering institutions also work with schools to establish a presence on campus in order to provide students with further access to banking services. Additionally, student cards are highly regulated and come with robust protections. Students are guaranteed a choice of disbursement method, access to ATMs on or around campus, and the option to make a one-time, fee-free transaction to remove all funds from the card.
Unfortunately, the Department of Education’s proposed rule on the disbursement of Title IV funds would effectively sever the relationship between schools and prepaid card providers and will ultimately raise costs for both educators and students. Worse, the department is relying on little more than anecdotal evidence to justify policies that would force reliance on outdated and expensive payment methods. School administrators ought to take notice of this attack on schools’ already tight budgets and speak out to preserve an important cost-saving measure.
Worst of all, the ultimate victims of this rule will be the students that the department should be safeguarding. When cashing their award checks, students without traditional accounts could face an average fee of $7.50 at banks or a fee of 1 to 3 percent using a check cashing service. Additionally, schools’ increased administrative costs will translate to higher tuition or an increase in fees.
The Department of Education should not be responsible for increasing education costs for students, but should instead be finding innovative solutions that facilitate inclusion and equality for all. As this proposed rule is considered, it is critical that all parties involved have a seat at the table and work together to find sensible, forward-looking solutions that are in the best interests of students and universities.
Colleges and universities particularly are at the forefront of this issue, and their insights into policies that best fit their institutions, purposes and students will be integral to finding these solutions. I look forward to working with regulators, consumers, educators and financial services companies alike to implement and safeguard students’ convenient, affordable access to Title IV funds.