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Using the bank your college recommended? Check for fees

Key Points
  • College-sponsored bank accounts cost students millions of dollars in fees each year.
  • That's the finding from a new report by the Consumer Financial Protection Bureau that the Trump administration never made public.
  • The bureau found students using accounts at these colleges paid more than $27 million in maintenance and overdraft fees during the 2016-2017 academic year.
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College-sponsored bank accounts ding students with millions of dollars in fees each year, according to a report by the Consumer Financial Protection Bureau.

The Education Department under President Donald Trump never published the analysis but advocacy groups recently obtained it through a Freedom of Information Act request. The bureau reviewed 573 colleges across the country with marketing agreements with banks.

It found that 1.3 million students attending these colleges had open and active accounts with their colleges' account providers.

Students using accounts at these schools paid more than $27 million in fees during the 2016-2017 academic year, including overdraft and penalty charges.

Wells Fargo charged students $46.99 a year in fees on average. College students who used accounts with PNC typically paid $15.84 a year. (Most Americans pay around $9 a month, or $108 a year, for their checking accounts, according to consumer finance site Bankrate).

"A lot of college students are on really, really tight budgets," said Whitney Barkley-Denney, a specialist in student finance at the Center for Responsible Lending. "Any kind of disruption in that cash flow can be devastating."

Wells Fargo announced this month a number of new benefits for its campus card customers, said Jim Seitz, a spokesman for the bank. Students won't pay any fees on their first four withdrawals at non-Wells Fargo ATMs in the month and can have one overdraft charge a month refunded.

PNC does not charge a monthly fee on student accounts and it waives the first overdraft fee in the account's first year, said Amy Vargo, vice president of media at the bank.

To be sure, at most colleges, a majority of students paid no fees when using sponsored accounts, the CFPB found.

Banks can compensate colleges based on the number of students who open and use their accounts, a practice that has raised concerns for consumer advocates.

"When you promote marketing of one financial product over another, it tends to remove the students' incentive to comparison shop," said Colleen Campbell, associate director of postsecondary education at the Center for American Progress.

Nearly 120 colleges report being rewarded by a bank to promote its financial products, according to the bureau. Wells Fargo paid $2,127,554 to colleges in the 2016-2017 academic year. PNC paid $7,562,570.

In its agreement with Wells Fargo, Texas State University could receive up to $300,000 if every enrolled student were to open an account.

Students at schools with a paid marketing agreement with a bank were assessed, on average, more than double the annual fees (or $34.34) as those students at a school without one ($15.11), according to an analysis by the U.S. PIRG Education Fund and Frontier Group.

"An argument can be made that these institutions aren't acting in the best interest of their students," Campbell said.

"College is already one of the biggest expenses many Americans will face," conclude the authors of the report by U.S. PIRG Education Fund and Frontier Group. "Students should not have to worry about being taken advantage of by banks with which their school has developed a partnership."

Education Department press secretary Liz Hill said the bureau's research confirmed the importance of the department's upcoming pilot program, in which certain students receive their financial aid on a debit card, including a fee-free option.

A spokesperson for the Consumer Financial Protection Bureau said the CFPB doesn't comment on unpublished studies.

Before you sign up for a bank account recommended by your school, shop around and learn about your other options, said Ted Rossman, an industry analyst at CreditCards.com.

Students should evaluate online banks that offer free checking accounts and withdrawals from any ATM, he added. "This way, the same account can cover all their needs, whether they're at home or at school," he said.

In addition, students might want to check out the brick-and-mortar banks and credit unions in their college town. "Do your own research — don't just take your school's word for it," he said.

There should be no charge for using a bank of the student's choosing, said Mark Kantrowitz, publisher of SavingForCollege.com.

"If you use the debit card provided by the college, watch out for high fees," he added.

Some of these debit cards provide only one free withdrawal a year, he said, and the number of fee-free ATMs may be limited and can quickly run out of money.

Nearly 1 in 10 consumers with student accounts picked up 10 or more overdraft fees per year, and they paid nearly $200 on average for doing so, a previous study by the Consumer Financial Protection Bureau found.

You have to actually opt in to an overdraft program at your bank to participate, said Matt Schulz, credit expert at CompareCards.com. That option allows your card to go through when you make purchases, even if your account is in the red — but you'll typically be charged a fee each time.

If you don't opt in, your card will just be declined if you can't afford a purchase.

Correction: This story was revised to correct the year that Wells Fargo and PNC respectively paid $2,127,554 and $7,562,570 to colleges. It was in the 2016-2017 academic year.