In a letter to Wayne Johnson, chief operating officer of the Federal Student Aid office, Sens. Richard Blumenthal (D-CT), Dick Durbin (D-IL), Elizabeth Warren (D-MA), Jack Reed (D-RI), and Sherrod Brown (D-OH) asked for extensive detail on how the program will protect students and prevent financial institutions from enriching themselves through inappropriate fees and practices.
“While we support efforts to improve the financial aid distribution process, we have serious concerns about your proposal given the poor track record of such cards in the past,” the senators wrote. “History shows that in the absence of strict oversight and safeguards, these card programs can leave students and taxpayers vulnerable to exploitation. Congress must be fully informed about how your proposed pilot program would impact our nation’s 42 million student borrowers and federal student aid programs.”
The FSA introduced the concept on Nov. 29, 2017, with plans to launch a pilot program in the summer of 2018 FSA. A prepaid card product that would be used to disburse the student aid funds normally used for non-tuition expenses. The FSA said the card would create a way to “manage, track and transmit” federal student aid funds to students.
The senators are concerned that the prepaid cards could be exploited by the financial institutions. A report by the U.S. Public Interest Research Group in 2012 found that financial institutions issuing prepaid or debit cards to college students were using a host of exploitative fees and practices. These fees resulted in revenues for financial institutions at the expense of students and taxpayers.
In 2015, the Department of Education issued regulations protecting students from these inappropriate practices. Schools working with financial institutions on these cards were required to evaluate them so that they are not charged excessive and confusing fees.
The senators want to make sure those protections remain in place.
“While we support efforts to improve the financial aid distribution process, we have serious concerns about your proposal given the poor track record of such cards in the past,” the senators wrote. “Any prepaid card disbursement program should provide transparency for students and taxpayers, protect students’ personal information, prohibit inappropriate fees, prevent conflicts of interest on the part of the persons and financial institutions involved, and be evaluated in light of the best financial interests of students.”