Federal Student Aid Debit Card Pilot Program

In January 2018 a notice posted on the federal register announced that the Department of Education plans to launch a pilot program for a Federal Student Aid payment card to facilitate the refund of FSA funds, along with other funds originated by schools. The pilot program includes the FSA payment card, which would act much like a prepaid debit card, along with a myStudentAid “Super Portal” app. The program has a target start date of spring/summer 2018 but participants have yet to be identified.

The stated primary goals of the FSA Payment Card pilot program include a focus on enabling more informed decision making to help students understand their student loan debt while streamlining and simplifying the FSA loan and grant refunds process. The Department of Education plans to restrict the products and services that students can purchase with their federal aid refunds. Students will also receive notifications about the long-term consequences of spending their refund money.

The myStudentAid “Super Portal” App, currently in development, is a useful way to help promote financial literacy using a format that is familiar to most students. This app will allow students to access all of their federal aid information in one central location. Instead of signing into multiple Federal Student Aid websites, students will have access to all of their relevant loan and Federal Student Aid information in one app that they have to check if they want to find out their FSA card account balance. It is surprising that something like this does not yet exist and would also make a great website concept- a portal for students to access everything FSA-related in one convenient location.

In 2015, the Obama administration issued regulations on companies that offer debit cards and other financial products on college campuses in an effort to discourage high, hidden fees while encouraging transparency. Another benefit of the FSA payment card pilot program is that it remains consistent with the spirit of these regulations. The Department of Education has committed to the program being free for students and schools. There will be no fees for any of the following:

-Annual Membership

– Activation

– Load/Reload

– Swipe

– Electronic Generated Checks (Up to five per month)

– NSF

– Overdraft

– Account Maintenance

– ATM withdrawals, In-Network

– Three ATM withdrawals, Out-of-Network

– Alternative Cash Points (Tellers or Merchants)

– Account Dormancy

– Foreign Transactions

Students will not need to pass a credit check in order to apply for the payment card program. With the lack of credit check and fees, students of all financial backgrounds will have the ability to acquire and maintain their payment card.

One of the stated objectives of the FSA payment card program is to simplify the federal student aid refund process. However, the program plans to restrict the types of products and services that students can purchase with their refunds. There are no published guidelines indicating what the Department of Education will approve or reject for refund spending. Restricting refund spending is a plan that works better in theory. It makes sense that the Department of Education would want federal funds to be used for specific education costs and to guide students towards smarter spending choices. However, this could pose a problem for non-traditional students who need their refunds for living expenses such as rent and daycare. The payment card system has the potential to make attending school even more difficult for students who already have barriers in their access to higher education.

Instead of simplifying the refund process, a lot of effort and financial resources are being thrown at a non-issue and will impact the neediest students. Schools already have financial aid budgets in place so that aid and loans cannot be awarded beyond what it would reasonably cost to complete an academic year.  Instead of implementing a system that micromanages student spending, the Department of Education could be using the money allocated for the pilot program on additional financial aid for needy students.

Overall, the FSA payment card pilot program has some elements that could be beneficial to students. The myStudentAid App will help students better understand their student loan debt and help promote financial literacy. However, restricting refund spending will add unnecessary obstacles for needy students trying to pursue a higher education. A single parent who is trying to use a federal aid refund to pay for child care while they attend school has enough stress on their plate without getting warning messages from the Department of Education about the ramifications of spending their refunds.