Education Department reviewing debit card program

  • By Peter Sachs
  • Staff Writer
  • March 16, 2009 @ 3:00 PM

The U.S. Department of Education is continuing to investigate a City Colleges of Chicago program that lets students receive extra financial aid money on prepaid debit cards.

The program raised concerns among financial aid experts because, with the exception of the first free withdrawal, students must pay a fee every time they use the debit card to get money from an ATM or a bank teller. The Daily News first reported on the debit cards and the associated fees in November.

The funds, known as financial aid refunds, are the money that’s left over after a student’s financial aid has been applied toward tuition. Typically, students can get $2,000 or more each semester which they can use for things like rent and groceries.

There is no timeline for the Department of Education to complete its review, says spokeswoman Stephanie Babyak. In general, the reviews can include interviews with school administrators and audits of financial records. Babyak declined to say exactly what the department’s review of the City Colleges entails.

“I don’t have any specific information at all on this particular case,” Babyak says. She added, “It’s done when they’ve thoroughly looked into the matter.”

Nearly 6,400 students had signed up for the debit cards as of the end of January, according to data from the City Colleges. Another 1,700 opted to get their student loan refunds via free direct deposit to a bank account.

When the program started at Kennedy-King College in Englewood last fall, many students said they felt pressured to sign up for the cards if they wanted their refund money. Student government associations at all of the campuses launched aggressive campaigns to alert students to the fees and show them how to get their money without paying the fees.

After the first free withdrawal, getting money from an ATM costs $2 and talking with a teller costs $10.

City Colleges officials have defended the program has a much less expensive alternative for students than using check-cashing services. And the district has asserted its program conforms to the Education Department’s guidelines.

Part of an official policy letter from the department on prepaid debit cards reads, “The student should not incur any fees for using the card to withdraw the disbursement from the institution over a reasonable period of time. It would appear to be reasonable for an issuing bank to allow ATM withdrawals from it to be free, or to provide several free withdrawals per month.”


Daily News Staff Writer Peter Sachs covers higher education. He can be reached at 773.362.5002, ext. 18