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College district's new bank card provider has history of fee complaints

Los Angeles Community College District students who use their new ID cards to access their financial aid money might want to read the fine print.

Thanks to an agreement signed in February between the college district and Connecticut-based Higher One Inc., students at all nine colleges in the sprawling Los Angeles district have received new identification cards that are linked to Higher One bank accounts.

The cards allow everyone who applies for financial aid to get instant access to their refunds – student loan money that's left over after tuition has been paid. That's cash that students can use to pay for things like rent, bus passes, food, clothes, books and other personal expenses while they attend school.

Higher One works with 675 public and private colleges and universities, according to its website. The Los Angeles Community College District chose Higher One out of 17 providers as part of a competitive process. District officials see the deal as a win-win for students and the district because the cards will save the district money and give students added convenience. Trustees approved the deal {PDF] on a 5-1 vote, with Trustee Nancy Pearlman dissenting.

Under the agreement, the district pays Higher One 40 cents for every financial aid check that goes to a student. In the past, the district had sent out these checks via snail mail. With stamps running 44 cents apiece, the district will save money on postage, not to mention the staff time and printing costs. And we're talking about a lot of checks: Last fiscal year, the district gave out more than $117 million in student financial aid to more than 22,000 students.

The deal is supposed to save students money and hardship, too. A financial aid director at Pierce College told the student newspaper that many students lack checking accounts, and they would take their financial aid checks to check-cashing stores, paying a steep fee to get the borrowed cash.

Under the Higher One deal, students can choose to have their refunds deposited into their existing bank accounts. If they don't, the funds will go directly into a new Higher One account. But while there are ways for students to use the "OneAccount" for free, there's also the potential for unwanted charges, causing some students at other colleges that partner with Higher One to complain about hidden fees. 

So what fees tick off Higher One customers? The OneAccount card is a debit card – not a credit card – yet students who try to use it as a debit card at retail stores will pay an extra 50 cents per transaction, according to the list of fees. To skip the fee, students have to choose "credit" at the cash register and provide a signature, rather than choosing debit and entering a PIN.

The company tries to explain this fee to users. The myLACCDcard website includes a link titled "How to Use the OneAccount for Free." The guide instructs students to use the "swipe and sign" method and to stick to Higher One ATMs. Still, not all students may be aware of the potential fee.

"It doesn't make any sense," Jessica Ventura, a Portland State University senior and economics major, told the Oregonian. Portland State University started using Higher One cards six years ago.

"It almost felt like they were taking advantage of the fact … that maybe students wouldn't read their agreement," Ventura said.

Students at Lane Community College [PDF] and Portland State University [PDF] have filed complaints about Higher One's fees with the Oregon Attorney General's office.

Higher One, as it turns out, reaps a higher profit when cardholders choose the swipe-and-sign method, according to Oregonian reporter Brent Hunsberger. He cited research by a Federal Reserve Board economist showing that merchants pay an average of $1.70 for every $100 charged through "signature debits," versus an average of 70 cents per $100 for PIN-entered debit purchases.

Higher One's vice president Donald F. Smith also told Hunsberger that the PIN fees are a way for the company to recover costs of those transactions.

The debit fee was so contentious at Portland State University and Southern Oregon University in Ashland that university officials negotiated deals with Higher One to strike the 50 cent debit fee from their agreements. Even so, the company has said it may end up charging those schools a fee to recover lost profits if too many students continue to choose the "debit" option.

There are a few more fees L.A. community college students should look out for. An "abandoned account fee" charges students $19 per month if they go nine consecutive months without any activity. And using a non-Higher One ATM will cost $2.50 a pop. There is, however, at least one Higher One ATM at each campus. 

Higher One's business model appears to be paying off handsomely. Its parent company, Higher One Holdings, Inc. completed a $124.2 million initial public offering in June 2010, generating $37.8 million in net proceeds, according to a filing with the Securities and Exchange Commission.

 

Filed under: Higher Ed, Daily Report

Comments

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Don Smith - Higher One's picture
Thanks for your article, Erica. One of Higher One’s company values is open communication, which is why the fee schedule for the OneAccount is so easily accessible. The OneAccount was designed to be used for free and most students use it in this manner (https://www.higheroneaccount.com/info/marketing/useforfreepopup.jsp). In fact, we believe that our customers pay less than half the amount in fees that the average bank checking account customer pays per year. And, because our services are tailored to the college experience, our customers receive greater value in addition to lower fees. The PIN fee you referenced in your article is one most students avoid. We have a proactive campaign to educate students on the “swipe and sign” method of purchase because it is free for the student and the student is protected by MasterCard’s Zero Liability Policy against fraudulent charges. The Abandoned Account fee you referenced in your article has been charged to less than 1% of all OneAccount holders in Higher One’s history. Students and administrators appreciate that our service is built on choice – a major reason we have a 97% retention rate and an A+ rating with the BBB.
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