Feds Target 'Troubling Practices' in College Debit Card Market

College credit card debt
UpperCut Images | Getty Images

The U.S. Department of Education plans to regulate the growing use of debit cards by the nation's colleges and universities. These campus debit cards—often with a variety of steep fees—are typically linked to a bank account where the student's federal financial aid is automatically deposited. At some schools, they are now part of the student ID card. (Tweet This)

Students and parents are rarely told about the financial arrangement between the college and the bank and how the school benefits from the deal.

The Department of Education said Friday that its proposed rules are intended to protect students from "excess fees" and give them the freedom to choose how to access their federal student aid funds, as well as safeguard taxpayer dollars.

More from NBC News:
State Budget Squeeze Pushes Students Deeper Into Debt
Corinthian Students Face Tough Choice to Discharge Loans
Students Checking Offers Few Benefits, Critics Say

"Students need objective, neutral information about their account options," said Ted Mitchell, Under Secretary of Education, in a statement. "For example, students should be able to choose to receive deposits to their own checking accounts and not be forced to utilize debit cards with obscure and unreasonable fees."

Consumer groups say the proposed rules would deliver critical transparency, eliminate predatory fees and fix a system where schools put revenue-sharing ahead of protecting their students.

"The rule bans some of the worst, most predatory fees that students encounter in these deals, and necessarily, enables students to get their aid dollars for free," said Chris Lindstrom, director of the U.S. Public Interest Research Group's higher education program.

Read MorePay for Harvard, via crowdfunding

The nation's bankers have repeatedly insisted that campus banking "represents a mutually beneficial partnership among banks, universities and students."

The Department of Education is accepting comments on the proposed regulations for the next 45 days.