Circumventing Credit Reform on Campuses: The Student Loan Debit Card

What a scam, indeed, Manatee Joe!  We are all willing to admit that most of us were idiots when it comes to personal finance when we began college (and moreso when law school began).  When you're 18 and you pull out a loan to go to school, you understand that you have to pay it back, but you don't really understand what that means.  For example, most student don't realize how interest is calculated:


Loan Balance: $50,000.00
Adjusted Loan Balance: $50,000.00
Loan Interest Rate: 6.80%
Loan Fees: 0.00%
Loan Term: 10 years
Minimum Payment: $50.00
Total Years in College: 4 years
Average Debt per Year: $12,500.00

Monthly Loan Payment: $575.40
Number of Payments: 120

Cumulative Payments: $69,048.28
Total Interest Paid: $19,048.28


Did you realize that when you were 18?  Did you know that interest would be be nearly half of the loan???  And that is if you pay the loan back in 10 years...

Another thing that you probably didn't understand when you were 18 is "credit."  Remember being stuck out in the rain and you'd see a tent set up in the Quad with umbrellas--like a reverse Oasis?  You'd approach the tent, and the hunky slightly older male with the Discover t-shirt tells you that you that you could have a super mega sized umbrella with your school's logo on it--if you fill out a form for a credit card.  He even throws in a bag of M&Ms--cause you flirted with him.  Then the credit card comes in the mail, and you may or may not know it's evil--but you charge $500 on it because it's so easy to use credit when you don't have cash on you.  And who has cash in college anyway?  And you are shocked and appalled when the balance is $500 a year later after you pay $100 every month?

Yes, in America, those in pursuit of higher education are often times most lacking in common cents.  Even though they are adults, having been insulated from the real world until college, they make stupid financial decisions that impact their entire adulthood.

Credit Reform has made it harder to market credit cards on college campus--but we all know that the financial institutions will not stop in their immoral and apathetic slaughter of students' lives for the $ake of the almighty dollar.

Here's the new plan, give students debit cards with the Mastercard logo on them, so they can more conveniently (read: easy and quickly) spend their student loan money:

Soon after they arrived on campus, more than a million college students across the country received a welcome letter and a plastic card bearing a MasterCard logo from a little-known company called Higher One:

"Meet your new best friend on campus," the letter reads. A school's emblem is featured in the letterhead - and even on the card - and students are urged to activate their accounts quickly.

But isn't this a credit card? How is this allowed post-Credit reforms?  No, because they are loan debit cards:

These cards, however, are not subject to the sweeping reforms that took effect this year and sought to curtail similar relationships between colleges and credit card issuers. Meanwhile, students complain that the loan cards are riddled with high fees, and they have organized protests at several campuses.

Pre-campus debit cards, the student loan payments would pay your tuition, then the remainder would be distributed to the students to put in a bank account and allocate as needed for living expenses.  Higher One takes the hassle out of this process by sending you a debit card which makes spending the money super easy.  They even encourage you to open up an account with Higher One for comfort and ease.    What's so wrong with that?

Well, the very practices that were banned are being circumvented with this new debit card:

Higher One charges students a $19 monthly penalty for accounts that aren't used for nine months, a practice now banned for credit cards. On its Web site, rival PNC Bank tells schools that setting up tables on campus to market its product to students may be required for a successful program - this is another tactic that was restricted under the credit card law. The legislation also requires colleges to submit their contracts with credit card companies to the Federal Reserve, which must issue a public report. Loan cards are not included.

Penalties for non-use?  This is arguably worse than a credit card that you sign up for and put away and forget about.  It's forcing you to spend your money.  I, for one, used to take the full amount that was left over and pre-pay my rent.  Then I would work for my spending money.  So, I would have been one of the people that was penalized for non-use of the debit/loan cards.  I have a feeling that this card will cause many students to zoom through their funds, since Mastercard is accepted everywhere, and run to the Financial Aid Office for emergency loans.

The business model has translated into booming sales for Connecticut-based Higher One. Its loan cards have yet to be widely adopted in the Washington area, but the company has signed up 675 colleges across the country. Higher One raised $124 million by selling stock publicly this summer, and sales in its most recent quarter reached $27 million, more than double from a year ago.

More than three-quarters of that money came from the fees it charges merchants and students. Higher One chief executive Dean Hatton told investors last month that the success of the business depends on signing up as many students as possible.

Blood money.  The young citizens of our country are dead before they hit the ground because of mounting debt.

When Corporate America dumped toxic chemicals into this nation's rivers for the sake of saving a few dollars, we cried foul.  Corporate America was the direct cause of irreversible environmental damage and still makes cost/benefit decisions that hurt Americans in the long run.  We asked and we still ask that Corporations be responsible for the damage that they cause.  Do we have to wait until the day that we walk over young, able bodied, educated people sleeping on the street before someone asks Corporate America to take responsibility for financial destruction of countless people?