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School-sponsored credit cards worry consumer advocates

Tennessee college students and recent graduates understand the financial burden that accompanies receiving a good education. If ever-increasing tuition rates were not enough to raise concerns among college students, the U.S. Public Interest Research Group Higher Education Fund recently released a report alleging that some colleges have been making secret deals with banks that simply add to the financial challenges faced by students and recent graduates.

The report suggests that nearly 900 colleges are currently lobbying for their students to use a financial instrument similar to a credit card to access financial aid money. While these financial tools may seem harmless, these payment cards often carry hefty fees, which add to already high levels of consumer debt. The report also found these fees might actually violate federal law.

With students already struggling to repay student loans in a sluggish job market these new fees simply exacerbate their financial problems. Student debt in the United States already exceeds $1 trillion dollars, which has surpassed credit card debt as the largest source of unsecured debt. Finding new ways to increase new debt for students is the last thing they need to worry about.

One of the fees charged by one of these institutions is a $50 lack of documentation fee. This fee is apparently applied to student's accounts that fail to submit certain paperwork. According to the U.S. Department of Education, the lack of documentation fee is an example of a fee that is not allowed under current laws. The same company also charged students for inactivity, overdrawn accounts and using a PIN number instead of a signature at a store.

Taking on debt is a big decision. To be sure that you're making a sound financial decision, it is important to carefully read documents associated with a new line of credit. It is also important to understand what debt is exempt from bankruptcy and what debt is not. For example, while credit card debt can be eliminated during bankruptcy, student debt often cannot be forgiven.

Source: The Commercial Appeal, "Colleges' bank deals slap students with big fees," Daniel Wagner, May 30, 2012

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Mark T. Young & Associates
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