The U.S. Department of Education’s Inspector General recently published a report, Third-Party Servicer Use of Debit Cards to Deliver Title IV Funds, in response to an inquiry from Rep. George Miller (D-CA) and Sen. Richard Durban (D-IL). The report focuses on Sallie Mae and Higher One and examines areas where they determined problems existed:

  • Schools that outsourced the reimbursement of credit balances to students often gave third party servicers significant control over the process, without adequate monitoring
  • Schools did not prevent the use of marketing to persuade student to except campus cards
  • Campus cards that permit fees to be debited after loading and have higher fees than alternative options, such as bank accounts
  • Some school contracts with servicers had financial incentives creating a conflict of interest
  • Some schools collected more personal data than needed, and schools didn’t monitor use of such data

The report makes several recommendations to reform the distribution of Title IV funds, including the following recommendations: (i) schools who outsource the return of students’ credit balances should monitor servicer activities, (ii) schools should ensure that students receive appropriate information on credit balance delivery options, (iii) schools should inform students about debit card fees and (iv) ensure no fees are charged for access to Title IV funds.

The report investigated Title IV distribution programs at four universities (less than 1 percent of the number of institutions of higher learning), calling into question whether an extremely small sample can be considered representative of Title IV distribution programs nationally and whether it’s constructive to report findings and make recommendations based on a such a limited sample. The report acknowledges: “Specific results obtained at the schools and servicer in our review may not be representative of the actual circumstances at other schools or servicers.”

More information may be found here.