By Jenna Ross

Minneapolis Star Tribune

Minnesota colleges are outsourcing a piece of the financial aid process, and thereby entering a national debate about whether such deals leave students paying the price.

Contracts like the one between the Minnesota State Colleges and Universities and the private financial company Higher One are being questioned by consumer watchdogs. Students are given cards to access their financial aid — and invited to open a Higher One account.

A recent report by the U.S. Public Interest Research Group criticized college partnerships with Higher One, arguing that they push students into using debit cards with sneaky fees that “eat up students’ financial aid awards,” said Rich Williams, the report’s author.

But local campus leaders and some students say that Higher One offers a pretty good deal compared with other big-bank options or, for those who might not qualify, check-cashing spots. Plus, in a time of tight budgets, working with the company saves campuses money.

“People are looking for a bad guy,” said Bonnie Meyers, director of finance at Century College. “We’re just trying to improve processes and get students their funds quickly.

She added: “It’s an account you can use for free, if you use it wisely.”

Schools sign on to save

Since the MnSCU system signed a contract with Higher One, 17 of its schools, including St. Paul College, Lake Superior College and Metropolitan State University, have outsourced their financial aid disbursement to the Connecticut-based company.

Now, as before, federal financial aid is sent to the colleges, which subtract tuition and fees and transfer the remainder to students to pay for books and other expenses.

Before Higher One, a student would likely receive a check in the mail or maybe have the funds deposited to an existing bank account. Now, a student must use a Higher One card and website to pick one of those choices or select a third: open a Higher One account.

“They have the choice,” said Dawn Reimer, a vice president at Hennepin Technical College who previously worked at North Hennepin Community College, the first MnSCU college to test the system.

Opening an account “is by no means mandatory,” a Higher One spokeswoman said by email.

But colleges often remind students that Higher One “is by far the fastest and easiest way to gain access to your refund money — literally the same day Century College releases it,” the White Bear Lake school said in a flier. “The new Century Choice Card is the key to faster refunds!”

It’s that co-branded coziness that worries the U.S. Public Interest Research Group, which questions whether campuses are giving students unbiased advice on which option might suit them best.

“If you’re an incoming freshman, you have this perception that the school has vetted this card,” Williams said, pointing out that the cards come in envelopes with both Higher One and campus logos. “That makes young consumers drop their guard.”

By outsourcing to Higher One, campuses can quit printing, stuffing and mailing checks, saving money and staff time. “Picture a thousand checks,” Meyers said. “Now, clerks can use their time to better serve students and take on other responsibilities.”

Campuses estimate savings totaling several thousand dollars to tens of thousands of dollars a year. North Hennepin saved about $55,000 a year, Reimer said.

The cost-benefit analysis

But watchdogs worry that while schools are saving, students are getting stuck with fees.

An analysis commissioned by Higher One and cited by the national report found that the annual median cost of a Higher One account was $49 per student. The account’s fees include a $50 delinquent account fee, a 50-cent PIN-based swipe fee, a $19 “inactivity fee” and a $2.50 fee to use another company’s ATM.

“Students can easily become captive consumers in the campus card marketplace,” the report said, “given the incentives that are in place to motivate banks, financial firms and colleges to create unfair fee structures.”

But Higher One points out that the analysis also found its service is on “the low end of the cost scale when compared to bank and prepaid card offerings.”

Since the report’s June publication, Higher One has eliminated several fees, including a $50 “lack of documentation fee,” for students who don’t submit certain paperwork. The company says it charged that fee to fewer than 2 percent of account holders.

Steve Sabin, president of the Minnesota State College Student Association, believes that Higher One provides an important option for students who might not qualify for a traditional bank account and would have to pay hefty fees to get a cash checked.

Sabin himself opened a Higher One account as a student at Central Lakes College in Brainerd and said that “overall, I think it’s a decent deal.

“I felt that I was at an advantage knowing the ins and outs, though,” he said, “which is why I think the communication piece is so important.”

Informing students

Alex Hasti, who studies engineering at North Hennepin, admits knowing little about the Higher One card she uses on and off campus. She’s careful to get cash only from one of two Higher One ATMs on campus. But because she doesn’t often check her account, she’s unsure whether she’s been charged other fees.

Hasti said she prefers the card to a paper check, but even better would be having those funds added to her bank account. There might have been that option when she signed up, she admitted, but “I don’t think it was easy to do.”

In interviews, campus officials said they believe the system of two-year community and technical colleges and four-year state universities negotiated a strong contract with Higher One that meets all the “best practices” recommended by the national report.

MnSCU’s 17-page contract with Higher One requires the company to give students the choice of transferring funds to an outside bank account or receiving a paper check. It also requires Higher One to set up at least one ATM for every 5,000 undergraduates enrolled at a campus “at mutually agreeable locations at no cost.”

The system’s two student associations are urging campuses — rather than Higher One — to pass along more information to students about their financial aid options. “Higher One is a for-profit company that is incentivized to sign students up” for their own accounts, their recommendations say. So campuses should provide details about Higher One’s fees, how to pick another option and what happens if a student doesn’t pick at all.

Fong Xiong knows the drill. He is working on a biology degree at Metropolitan State University but also is taking courses at North Hennepin Community College, and both use Higher One. Before classes start, he gets a Higher One card in the mail and uses that to direct any deposits to his traditional bank account. But he does not activate the Higher One account.

“I’ve already got a check card, a checking account, a savings account, all those other accounts,” Xiong said. “I don’t want another one on top of that.”

So where is the Higher One card right now? “Buried somewhere at home,” he said.