The federal government should ban overdraft fees for financial accounts established through a partnership between banks and colleges and universities, according to a new report from the Center for Responsible Lending.
Those overdraft fees can cost students hundreds of dollars a year — more than books — on accounts often set up to handle financial aid payments.
The review included two schools in Florida with bank partnerships: the University of Central Florida and Miami Dade College. UCF partners with Fairwinds Credit Union, which charges $35 per overdraft while Miami Dade College partners with Higher One. Some Higher One accounts charge a monthly fee but have no overdraft fees, while other accounts charge up to $38 per overdraft.
About 40 percent of young adults said they overdrew their account at least twice per year. The heaviest offenders, 11 percent of young adults surveyed, said they overdrew their account 19 times per year — or $665 in overdraft fees under the terms of a UCF Fairwinds Credit Union account.
Students could avoid those charges if banks declined the debit charges rather than charging overdraft fees, sometimes several in a day before students know their account is overdrawn.
Colleges often partner with banks, credit unions or other financial institutions to help students set up accounts to accept financial aid payments. But the Center for Responsible Lending found most college students already had a bank account and that students could usually find equal or better terms at banks on their own.
Banks like partnering with colleges because customers say they are less likely to switch financial institutions than they are with other products.
Florida lawmakers are debating whether to require students take a financial literacy course in order to graduate high school.