In my last Toughey Talks email, I mentioned the hype surrounding disbursement of student refunds to debit cards. It doesn't surprise me that some vendors are pushing this service as there are ample profits in providing "free" refund debit cards and bank accounts to your students. These profits may be challenged when new regulations for interchange rates take hold, so it wouldn't surprise me if new fees pop up to replace lost interchange revenue.
What does surprise me, however, is that some colleges and universities have embraced refunds to debit cards with the intent of servicing their "unbanked" student population. They've embraced a solution that focuses on just a few "unbanked" students instead of the vast majority of "banked" students. According to a 2009 FDIC survey, fewer than 8% of all American households are "unbanked." It's puzzling that a school would subject 92% or more of its students to the hassles of opening a new bank account and/or managing another debit card in the hopes of getting the other 8% on the bandwagon.
I would guess that most of you reading this email get paid through direct deposit to your bank account, not via a debit card. Fast, cheap, and ubiquitous, direct deposit has become the de facto standard for "pushing" money to people. The most straightforward approach to student refunds is to:
- Mandate a direct deposit policy in place for everyone (allowed by Title IV).
- Disburse refunds directly to student's existing bank accounts.
- Deal with the small number of "unbanked" students on a case-by-case basis.
This simplifies the refund process for both students and your staff. It also prevents the "tail from wagging the dog!"