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College Students and Recent Grads

Should You Avoid College Sponsored Prepaid Debit Cards?

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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:

  1. Fees to activate the card
  2. Fees to load money onto the card
  3. Ongoing monthly fees
  4. Fees to use the card at ATMs
  5. 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.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Natalie Bacon
Natalie Bacon |

Natalie Bacon is a writer at MagnifyMoney. You can email Natalie at [email protected]

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Understanding the Income-Contingent Repayment Plan (ICR)

Understanding the Income-Contingent Repayment Plan (ICR)

If you have federal student loans, then you will have to choose a repayment plan when it is time for you to start making payments. There are many repayment plans to choose from, including a standard (10 year) repayment plan, an extended (25 year) repayment plan, and three other repayment plans based on your income. One of the three income repayment plans is the Income-Contingent Repayment plan (ICR).

[Learn more about Income-Based Repayment and Pay As You Earn plans.]

What Is the Income-Contingent Repayment Plan?

The ICR plan is an income driven repayment plan that sets your payments to the lesser of: 1) 20% of your discretionary income, or 2) what you would pay on a repayment plan with a fixed payment over a 12 year period, adjusted according to your income. If you file taxes individually or you are married filing separate, only your income will count. If you file jointly, both incomes will count.

After 25 years, your remaining loan balance is forgiven. However, you will owe taxes on the forgiven amount.

What Makes You Eligible for the Income-Contingent Repayment Plan?

In order to qualify for ICR, you simply must be a borrower with eligible federal student loans. That’s it. There is no initial income eligibility requirement. All federal loans qualify to be on the ICR plan (private loans do not qualify).

Each year, you must provide your income and family size to qualify for ICR. Your payments may increase or decrease based on whether your income and/or family size increases or decreases. Under ICR, your payment is always based on your income even if that means your payments are higher than what they would be on the Standard, 10-year plan (this is different than other income driven plans, which keep your payments capped once your payments would exceed what they would be under the Standard plan).

Pros and Cons of the Income-Contingent Repayment Plan

ICR was the first income driven repayment plan (created in 1993), and it was great until the Income Based Repayment (IBR) plan was created in 2009. Now, the only benefit of ICR over IBR is when you cannot qualify for IBR. For example, certain loans, like Parent PLUS Loans, do not qualify for IBR but do qualify for ICR.

On the ICR plan, your payments are generally lower than if you were on the Standard, 10-year plan. However, they are generally higher than other income driven plans, which is why most people do not use the ICR plan. The benefit of ICR compared to a standard plan is that lower payments mean your loans will likely be more manageable. The downside of ICR is that you will have to pay taxes on any debt that is forgiven, and you will likely pay more in interest over time. In fact, your payments may not even cover the interest you owe.

Most people do not use ICR these days, but for people with low incomes and Parent PLUS loans, ICR is still a good option.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Natalie Bacon
Natalie Bacon |

Natalie Bacon is a writer at MagnifyMoney. You can email Natalie at [email protected]

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Understanding the Pay As You Earn Plan (PAYE)

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If you have federal student loans, then you will have to choose a repayment plan when it is time for you to start making payments on your loans. There are many repayment plans to choose from, including a standard (10 year) repayment plan, an extended (25 year) repayment plan, and one of three repayment plans based on your income. One of these three income repayment plans is the Pay As You Earn plan (PAYE).

[Learn about Income-Based Repayment and Income Contingent Repayment Plans.]

What Is the Income Pay As You Earn Plan?

The PAYE plan was passed by President Obama on December 21, 2012, and is the newest income driven repayment plan. Under the PAYE plan, your student loan payments are capped at 10% of your discretionary income.

If you file taxes individually or you are married filing separate, only your income will count. If you file jointly, both incomes will count.

After 20 years, your remaining loan balance is forgiven. However, you will owe taxes on the forgiven amount.

Direct Loans and Direct PLUS loans qualify for PAYE, but private loans and Parent PLUS loans do not qualify.

What Makes You Eligible for the Pay As You Earn Plan?

In order to qualify for the PAYE plan, you must show a “partial financial hardship”. You must be a new borrower as of October 1, 2007 and you must have received a disbursement on or after October 1, 2011.

To show a partial financial hardship, you must show that the annual amount due on your loans exceeds 10% of the difference between your adjusted gross income (AGI) and 150% of the poverty line for your family size in the state you live.

Generally, people who qualify for PAYE will have borrowed for the first time in the 2008-2009 school year and will have borrowed after 2011 (basically, only new borrowers qualify for PAYE). This means that people who were freshmen in college in 2008 will qualify, as well as people who were sophomores, juniors, or seniors in 2008-2009 and then went to graduate school and took out federal loans.

Considering the limiting date restrictions, President Obama announced that the PAYE plan will be extended to borrowers who took out loans before October 1, 2007 in late 2015.

Pros and Cons of the Pay As You Earn Plan

PAYE is the most generous income driven plan. Like other income driven plans, on the PAYE plan, your payments are lower than if you were on a traditional plan. Lower payments mean that your loans will be more manageable, giving you more money to live on.

The downside of the PAYE plan is that it is only available to new borrowers (at least for right now). Additionally, you will pay taxes on any debt that is forgiven, and you will likely pay more in interest than if you were on a standard plan.

The fact that PAYE is a relatively new repayment plan that is set to change later this year shows how the government is still making strides to help student loan borrowers in ways that it hasn’t before. It remains to be seen how PAYE will benefit borrowers over time.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Natalie Bacon
Natalie Bacon |

Natalie Bacon is a writer at MagnifyMoney. You can email Natalie at [email protected]

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