The college experience requires some level of spending money. This can be achieved from earning money or through help from parents. In the case of earning money, it is more likely that the student will have a checking account (and corresponding debit card). However, if parents are contributing to the student’s spending money, then it may seem easiest to get a prepaid college sponsored debit card.
Should or shouldn’t you use a prepaid debit card? The answer is that there is no right answer – you will have to decided for yourself because every situation is different. The key point to keep in mind with prepaid college sponsored debit cards is that there are fees and they are highly unregulated. So, if you are thinking bout using a prepaid college sponsored debit card, weigh the pros and cons detailed below to make an informed decision.
What Is a Prepaid College Sponsored Debit Card?
A prepaid college sponsored debit card is a debit card issued by a bank, in conjunction with your university that allows you to prepay or “load” the card for use. You can use the prepaid card anywhere that accepts the issuer (e.g. if you have a prepaid Visa, then you can use the card anywhere that accepts Visa). With a prepaid card, a certain amount is loaded onto the card and the user is unable to spend more than the amount on the card. This means that there is no overspending and no overdraft fees. However, there are fees associated with these cards have caused skepticism.
What Fees Are Associated With a Prepaid College Sponsored Card?
Each prepaid card is different. However, in general, prepaid debit cards have higher fees than traditional debit cards. Some of the fees associated with these cards include:
- Fees to activate the card
- Fees to load money onto the card
- Ongoing monthly fees
- Fees to use the card at ATMs
- Fees to speak with a customer service representative.
The specific fees associated with a prepaid card will vary based on the card.
Additionally, the school promoting the card may be getting paid large amounts of money (and the school may even get a cut of the profits the bank makes from students – see more here). This makes it very important to be smart about which card you sign up for. Read through all the terms and conditions. If you feel there is a lack of disclosure for whatever reason, then walk away. You do not want to sign up for something when you don’t know what you’re getting into. You should also do some research to see if anyone has complained about the card or experienced abusive practices from the bank.
Are There Laws In Place For Prepaid College Sponsored Cards?
Currently, there are no Federal laws in place regarding fee limits and requirements to disclose the exact terms of the card. Similarly, the FDIC may not cover your prepaid card. The FDIC insures up to $250,000 for regular debit cards. Whether the FDIC backs your card will depend on the specific terms associated with the card. The result of not being backed by the FDIC means that in the event of losing the money, you are out of luck.
The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 requires credit card companies to disclose contracts with universities; however, this law does not extend to prepaid debt cards. Therefore, the card companies do not have to disclose the contracts with college for prepaid cards (at least not yet).
How Do I Get A Prepaid College Sponsored Card?
You can sign up for a prepaid college debit card at your university. Most likely, your school will have stands on campus promoting these cards. If not, you can contact the registrar or bank at your university and ask them where you can sign up.
What Else Should I Know About Prepaid College Sponsored Cards?
Having a prepaid debit card means that you cannot spend more than you have in the account. This is good for spenders, however, it may not teach the user how to be responsible with money. Additionally, there are not credit benefits to using a prepaid debit card. That is to say, you do not build credit by using one of these cards. Finally, it is very important to look for the hidden fees associated with prepaid college sponsored cards – as these cards gain popularity, the fees are going up. It is important to consider your situation and whether using a prepaid card makes sense not only for your current needs but also for your future goals.
What Other Options Do I Have?
Parents who would like to be able to easily send their child money and aren’t comfortable with a child getting access to a credit card or account with overdraft options should consider a Bluebird family account.
Bluebird is an AMEX product partnered with Walmart to offer a banking alternative. There is no monthly or annual fee, no activation fee, no cost to send or receive money and no overdraft fees. There are no ATM fees at MoneyPass ATMs, which includes Money Center Express machines at Walmart. There is a high fee to take money out of other ATMs including a $2.50 charge from AMEX on top of the ATM surcharge.
You can find a full fee and limitations list here. Parents can transfer money to a student for free from a checking or savings account or add cash at a Walmart checkout register.