Protecting college students.
The Department recently announced proposed regulations aimed at protecting as many as nine million college students that are receiving $25 billion in federal student aid by providing tougher standards and greater transparency surrounding agreements between colleges and companies in the rapidly expanding college debit and prepaid marketplace. These regulations are intended to safeguard students from excess fees and grant them the freedom to choose how to access their federal student aid funds when paying for college (blog post).
Key changes in the higher education marketplace have led to the proliferation of campus debit and prepaid card accounts offered to students in exchange for monetary and other benefits to schools. Increasingly, students are receiving their Title IV credit balances--money refunded to them after tuition and fees are paid to the school--through these accounts. Yet, reports from consumer groups and government sources have described troubling practices arising from college card agreements. Given the number of students potentially affected by these agreements, the amount of taxpayer-funded assistance at stake, and the expanding breadth of the market, regulatory action has become necessary.
Proposed regulations would:
* prohibit an institution from requiring students or parents to open a certain account into which their credit balances are deposited;
* require institutions to ensure students are not charged overdraft fees if they select an account offered directly or indirectly by contractors that assist institutions in making direct payments of federal aid;
* require institutions to provide a full list of account options that a student may choose from to receive credit balance funds, where each option is presented in a neutral manner and the student's pre-existing bank account is listed as the first, most prominent, and default option; and
* require institutions to ensure electronic payments made to a student's pre-existing account are as timely as--and no more onerous than--payments made to accounts marketed through institutions.
Interested parties can submit comments on the proposed regulations through July 2.
Also: The Department conducted thorough reviews of the four major federal student loan services to ensure they followed federal law when it comes to loan interest rates for active-duty servicemembers. These reviews found that the companies complied in the vast majority of cases under the Servicemembers Civil Relief Act (SCRA), as required by the Higher Education Act (HEA). Indeed, between 2009 and 2014, borrowers were incorrectly denied the 6% interest rate cap required by the laws in less than 1% of cases. (Note: The agency is expanding its review of compliance with the SCRA and the HEA to the seven non-profit servicers, as well as commercial Family Federal Education Loan (FFEL) servicers.)