The Changing Landscape of Student Refunds
Along with minimal fees, students want a variety of options for receiving refunds from their higher ed institution. More stringent regulations and public scrutiny are also prompting institution leaders to look at the adequacy of their refund options. This web seminar, originally broadcast on October 10, 2013, addressed the long term trends that are changing the landscape of student refunds, and presenters discussed a new refund disbursement method available from Nelnet Business Solutions that benefits both students and institutions.
Executive Vice President
Managing Director of Product Management, Marketing & Communications
Nelnet Business Solutions
In 1965, Title IV of The Higher Education Act allowed for financial assistance to students seeking higher education. Title IV also regulated student refunds. For years, schools have been burdened with processing paper checks for refunds. This has created a variety of problems for institutions, such as checks that get lost in the mail, compliance with the fourteen-day rule, and unbanked students paying fees at check cashing outlets. Then came Automated Clearing House (ACH). This is a good way to disburse funds, but it also has its challenges.
Today, we are still dealing with unbanked students and fees associated with checking accounts. The next development was debit cards linked to bank accounts. Student refunds as a business have gained momentum under this model, where a third party working with the school provides the refund on a debit card that is tied to a bank account for a student. This has been a popular option for many institutions. The Consumer Financial Protection Bureau has been very vocal about concerns relating to colleges and universities requiring students to accept debit cards that end up costing students significant fees. Some studies have shown that the average annual fees to students can be over $50 in this model. There are monthly service fees, foreign ATM fees, lost card fees, overdraft fees, and more. The bottom line is that banks are making money on students who are not yet financially savvy.
So, how can higher education institutions protect themselves from the increased level of scrutiny when it comes to fees, while providing a refund solution that offers students a choice of their preferred financial tool? As you evaluate your priorities around your current refunds process, take into consideration the following: Students should have a choice in the financial products they use and how they get their refund. Fees should not be predatory; students should have easy access to their funds. There should be an elimination of unnecessary scrutiny from consumer protection groups, as well as increased financial staff efficiency.
Clearly, the student refund landscape is changing. Students want more options and schools are looking for disbursement methods that limit fee exposures to students. With increased scrutiny and mounting regulatory pressure surrounding student refund disbursement, it is time to take a close look at your own refund process and protect your campus from unwanted attention. When we researched the best way to offer a refund solution, we looked at how students like to handle their finances, and then built a product around their preferences.
This solution is called Student Choice Refunds. It offers three options for students to choose from in receiving their refund:
- ACH, which is great for students who have existing bank account relationships and prefer a traditional approach
- Paper check, which is the default if a student does not make a selection, and keeps institutions in compliance
- Any reloadable card.
No other provider offers the choice of any reloadable card. This option addresses the scrutiny issue, because the banking relationship is removed from the institution and the provider. The “student paying fees to the big bank” dynamic is gone. The issue of lack of choice is also addressed. The reloadable card is gaining momentum on campuses with the college-aged demographic. Recent headlines from The Wall Street Journal and CNN confirm this. A recent study from the Federal Reserve shows these cards to be one of the fastest growing payment types in the nation in the past few years. We have done considerable research on different options available for the unbanked student population. We have aligned with the Bluebird card as a very attractive financial tool for this demographic.
Senior Vice President
General Manager, Bluebird
In partnership with Walmart, American Express has developed Bluebird, which is a banking, checking, and debit alternative. The bottom line is that banking is becoming more expensive for more American consumers. There are regulations such as the Durbin Amendment, which limits how much banks can charge for debit cards. Banks are also faced with the cost of having a big bank infrastructure, where utilities, security, and more must be paid. What these trends have meant for banks is that many of their customers have become unprofitable.
There was an article in the Economist recently which quoted a study by Oliver Wyman, a consulting firm, which said that banks are losing money on 36 percent of their customers. In response, to try to make customers more profitable, banks have introduced a substantial amount of fees. There can be monthly fees and minimum balance fees. What has previously been considered a basic service has become very expensive for consumers. Often, this manifests itself in penalties, such as high overdraft fees.
Another response to the lack of profitable customers has been the closing of bank branches. Bloomberg has reported that since 2008, over 1,800 bank branches have closed. Most of these are located where the income is below the national median. A bank branch needs about $40 million in deposits to be profitable. Increasingly, with the recession and the long term trend of increasing income inequality, fewer branches are able to stay at that profitable level of deposits. It is expected that 40 percent of bank branches could close in the next decade. Basically, banking is becoming more expensive for consumers, as well as less convenient.
When American Express was looking at this problem in partnership with Walmart, we also looked at what is happening with technology. The smartphone is an incredible tool with high processing power, extensive memory and storage, and internet access. This one device has taken over the function of many everyday devices. User adoption of this technology is high, particularly among younger populations. We saw these trends as creating an opportunity for us to transform the way banking services are provided. And so, American Express and Walmart created a new service called Bluebird.
Bluebird offers all of the functionality of a traditional checking account with very minimal fees. There are no monthly, yearly, or overdraft fees. No credit check or minimal balance is required. Money can be added in a variety of ways; tuition refunds can be direct deposited into this account. To access the funds, students can take cash out at an ATM, or pay bills online with the account. Students can even write or deposit paper bills from or into this account. Students also receive the benefits that American Express Gold and Platinum card holders receive, like purchase and fraud protection, and roadside assistance. Bluebird also offers a mobile app, which has the full functionality of an account. If students need any assistance, they can call American Express’s award-winning customer service 24/7. The few fees that do exist are very clearly explained to customers.
What we are trying to accomplish with Bluebird is an option for students to receive their refunds, as well as manage their financial lives during and after college. Wenger: At Nelnet Business Solutions, we were impressed with the features available with the Bluebird card. We were also pleased with the low number of fees; it is a great option for students who have been traditionally unbanked. We’re very excited to offer this new and unique student refunds option to institutions.
To watch this web seminar in its entirety, please go to: www.universitybusiness.com/ws101013