Rosalind Evans
As a new academic year unfolds, banks and credit unions eagerly seize the opportunity to introduce college students to various checking accounts and debit cards. Partnerships with colleges and universities primarily fuel this enthusiasm to cultivate lifelong customer relationships. However, experts urge caution, highlighting that these school-branded accounts may not always offer the most favourable terms for students.
Rich Williams of the Consumer Financial Protection Bureau (CFPB) warns, “Some of these co-branded accounts could provide good value to the students, but that’s not always the case.” He points out that financial institutions often pay substantial sums to schools for exclusive marketing rights, which doesn’t necessarily translate to the best student deals.
Forty percent of college students are at institutions with bank-related marketing agreements. The U.S. Government Accountability Office reported this, raising concerns about the widespread nature of these partnerships. Further scrutiny comes from the Center for Responsible Lending (CRL), which found these accounts to offer “few benefits” to students.
Maura Dundon of CRL emphasizes, “Your college has not necessarily reviewed all the accounts available and decided this is the best account for their students. They’re getting money to help the bank market this to you.” This marketing often includes co-branded mailings and website ads, sometimes linking the account to student ID cards for convenience.
Williams advises, “This co-branded marketing could leave the student believing this is a superior deal to what they could find on their own, and that’s not necessarily the case.” He underscores the importance of students shopping around and examining terms and conditions before choosing a college account.
The CFPB also reminds students that they are not obligated to accept offers that appear to be official mail from their college. Conversely, the American Bankers Association (ABA) argues that these partnerships benefit students, often offering accounts with lower fees and ATM costs. Nessa Feddis of the ABA mentions, “The only difference between a campus account and a non-campus account is that the monthly fees are lower, and they may pay less at an ATM.”
However, the U.S. Department of Education has identified “excessive fees” and “troubling practices” in on-campus debit cards. This led to proposed rules in March, with final regulations expected to regulate these accounts in the fall.
Greg McBride of Bankrate.com advises students to look broadly, including credit unions and online banks, and not to feel restricted to ‘student’ accounts. He stresses the importance of understanding account terms, especially regarding fees like monthly charges, ATM fees, and overdraft penalties.
Overdraft fees are a significant concern, particularly for students who often make small, frequent transactions. Dundon warns of the potential for hefty overdraft fees on minor purchases, advising students to understand how overdraft protection works and to opt out if necessary to avoid fees.
The article concludes with advice from the ABA and Waterford Bank, N.A., highlighting six financial traps that new college graduates should avoid. These include needing a budget, accumulating debt, neglecting future planning, underestimating emergencies, delaying bill payments, and ignoring free banking services.
As students navigate their financial journey through college, it’s vital to assess the benefits and drawbacks of college-branded banking accounts critically. With many options available, the responsibility lies in making informed decisions that align with their financial needs and goals. Remember, the path to financial well-being is paved with knowledge, caution, and wise choices.
