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Rulemaking Process Could Transform Business Of Controversial Student Debit Card Company

The Department of Education's "Negotiated Rulemaking" could set in place rules that could drastically change the business of higher education finance company Higher One.

Posted on November 20, 2013, at 5:51 p.m. ET

Higher One, the controversial finance aid disbursement and higher education financial company, could finally be facing new regulations from the Department of Education. Yesterday, the Education Department announced that it would form a "negotiated rulemaking committee to prepare proposed regulations" for the disbursement of federal student aid.

To be implemented by July 2015, the rules would have be agreed upon by the negotiating committee, written, commented on by the public, and pass muster with the White House and the Office of Management and Budget, by November 1, 2014.

Under Title IV of the Higher Education Act of 1965, the Education Department has wide authority to regulate the disbursement of federally subsidized financial aid. Since Higher One is largely active on community colleges and campuses with low-income student populations, much of the aid it disburses is federal.

"We announced our intent to propose regulations to address the use of debit cards and other banking mechanisms for disbursing title IV Federal Student Aid program funds," the Department said.

In order to pass education regulations, a wide range of stakeholders need to reach consensus to write a rule that will then face public comment before going into effect. In this case, the Education Department has called for negotiators from twenty groups, including students, two and four year colleges, banks, and "business and industry."

"I'd expect Higher One to be at the table," said Ben Miller, a policy analyst at the New America Foundation and former Education Department policy advisor, "and they would be loath to agree to much."

If the negotiators can't reach consensus, the Department can step in and write its own rule, although they typically include what the negotiators could agree on, Miller told BuzzFeed.

Higher One disburses financial aid on around 600 campuses and has some kind of business relationship with about 1,600 schools. Higher One has attracted criticism for the fees on its debit card that students use to access their financial aid and new rules could alter their fee schedule and marketing practices.

The schools that use Higher One's services; which include disbursement of financial aid, data analytics, and managing payments; enroll a combined 13 million students, about 60% of all college and university students, according to the company. Higher One has more than 2 million OneAccounts, checking accounts used to access financial aid dollars.

A Higher One spokesperson did not return a request for comment.

The Department of Education isn't the only agency interested in debit cards on campus. The Consumer Financial Protection Bureau, which also does work on student loans and debit cards, launched an inquiry into student debit cards, including ones that disburse financial aid like Higher One. The FDIC reached a settlement with Higher One last year over the fees it charged on its checking accounts, and the company was forced to pay a $110,000 civil penalty and $11 million in resitution. The company also announced a preliminary $15 million settlement to a class action suit over its marketing and fees last month.

Richard Cordray, the Bureau's director, said that "some of our colleges and universities, whether well-intentioned or not, may be encouraging or even requiring our young people to use financial products that do not offer the best deals," during a forum the CFPB hosted on financial services for college students. "We are distressed to hear that some students feel pressured to use specific products and may be unaware that when they sign up for those products their schools are secretly making money," Cordray said.

Representative George Miller, a California Democrat who has been a critic of some of Higher One's business practices, told BuzzFeed in a statement, "As it stands, there are few protections to ensure that vital student aid dollars aren't siphoned off in fees and other charges to pad the pockets of financial firms, the Department is right to move forward in pursuit of stronger rules in this area."

In a conference call with analysts to discuss its quarterly earnings, Higher One president and chairman Miles Lasaster described the uncertainty around rulemaking as "a factor in the macro environment that we believe does impact the sales process." He said that some prospective clients ask about the rulemaking process and "want to have more certainty."

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