Debit Card Financial Aid Scam Hits Thousands of California Students

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Close to half of California’s community colleges and numerous other colleges and universities are now disbursing financial aid through debit cards contracted through Higher One, the Bay Citizen reports. According to the U.S. PIRG Education Fund, Higher One is the largest player of its kind in the U.S., with 520 partner campuses, enrolling over 4.3 million students nationwide.

Not only do students have to pay fees in order to access their financial aid, but Higher One has been accused of charging multiple fees, aggressively marketing their products and violating customers’ privacy. Earlier in the year, Ventura College student Sherry McFall filed a class-action lawsuit against Higher One, accusing them of creating bank accounts for students without their consent. The suit also claimed they improperly disclosed fees.

Traditionally, students would receive a financial aid check which they would deposit in their bank. They could then write checks against those funds or withdraw cash, as needed, to pay for food, rent, books or other expenses.

With the Higher One debit cards, students can still do this, but only after transferring the funds to another bank account. It is much easier to simply use the card as a debit card, which many do, especially after being bombarded with advertisements from the company telling them this is the fastest and easiest way to access their money.

Once they start using their cards, Higher One has numerous ways to skim off portions of their financial aid. For example, there are several fees that are charged upon activation of the card, as well as 50 cent transaction fees each time the card is used to make a purchase, according to the Bay Citizen report. Furthermore, if students use an ATM that does not belong to Higher One, they also get charged $2.50 by Higher One, plus whatever fees are charged by the ATM. And if they do not use their account for six months of longer, they are assessed a $10 month fee.

While Higher One says it will vigorously fight the lawsuit, it admits in its own annual report that persuading students to activate a Higher One account is part of its sales efforts. Furthermore, in an interview in the New Haven (Conn.) Independent, Higher One President, Miles Lasater, said that half of its revenues ($88 million in 2011) come from additional fees.