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New Changes Proposed to Federal Financial Aid Tools: Mobile App and Debit Cards

The Office of Federal Student Aid (FSA) continues to explore tools for families and college students to use. Two of the ideas being fleshed out by the FSA right now are a FAFSA mobile app and debit card loaded with a student’s federal student loan money.

An app?

The mobile app has been proposed as a means for students to fill out their Free Application for Student Federal Aid (FAFSA) without using a computer. The app might be a way to encourage more students to fill out the FAFSA because so many today do not bother to do so. Millions of federal aid dollars go unclaimed each year because the family doesn’t complete the FAFSA. Right now, only three out of five high school seniors complete the FAFSA.

The mobile app platform would also allow your client’s students to manage their federal student loan debt after graduation. The app is projected to roll out this spring.

Without further details, we are left with many questions. Your clients are often the driver of this process. It is mainly their information that is needed to complete the FAFSA. How will they and their students share the process via an app? What will communication look like?

Will students be required to use the app? Could they still choose to use a computer?

Finally, we also have concerns about the security of an app on a mobile device. Last year the FAFSA system was hacked, and private information was stolen. The technology around any app platform must ensure that private information is not at risk.

In general, we are optimistic about the proposed app. The thought behind it seems to be good—serving the underserved. Also, customer service may be improved by using a single technological tool to manage things from applying for federal aid all the way through paying off a student loan bill.

A debit card?

The second new tool being proposed by the FSA is a debit card. A student’s federal student loan debt money would be loaded on the card and then the student can use it to pay their college bills.

Today, the student loan money is sent to the college who uses those funds to pay a student’s outstanding tuition, fees, room and board. Any money left over is dispersed to the student.

Under the proposal, the student would receive a debit card loaded with all their loan funds that they would use to pay their bill.

Up until now, students have had the flexibility to use their extra money after their colleges costs were paid however they wanted—pay for books, pay for extra food, pay for transportation, or pay for that new video game. It is their money to use as they want. They are the borrowers, technically adults, who will have to eventually pay it back.

The debit cards may have restrictions on what they can be used for. Your clients may think at first “wow, great idea.” However, each student’s situation is different. They may need the money for things the government may not approve of or think to allow. Is it appropriate for the government to regulate how the money borrowed by “adults” is used? Although we hope the money would be used wisely, we worry about too much oversight.

Consumer advocates are worried about how the debit card system would be created. The bid would be awarded to a private company to handle the cards. This company will now have access to all the private information of your client’s student. How will they use that information? Will they sell it to third parties?

In addition, the winning bidder has the chance to establish a life-long financial connection with your client’s student, getting them at the very beginning of their financial lives. They could continue to sell them future financial products. What a powerful enticement to manage this new debit card system! The proposal is supposed to allow for students to “opt out” of communications but opting out of things is always a gray hazy area we often don’t pay attention to.

Finally, concerns about the FSA overstepping their authority are being expressed. Is the FSA
becoming too much like a banking company by wading into this debit card thing?

Stay tuned

We expect to hear more about the roll outs of both these new tools. Both are targeted to start testing this spring. We hope concerns are addressed and strong tools are given to your clients and their students to modernize the financial aid process.