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Prepaid debit cards grow on college campuses

Many students in Ohio have settled into a dorm room, or apartment near campus. In the past, students were often inundated with offers from credit card companies, providing access to plastic. However, tighter consumer protection rules have generally reduced the overall presence of credit card offers that students can receive while on campus.

A new form of plastic seems to be growing on college campuses across the country. Prepaid debit cards are not only being offered as an alternative to credit for college kids. In fact, a few schools in the country have begun to issue student ID cards that can double as a debit card. The prepaid cards act much differently than old school plastic.

The money must be loaded into the account in advance. The upside to that method may be that use of the card does not create debt that can later straddle a student down the road. Similarly, use of the card is not a loan, and therefore does not impact a card holder's credit report, or credit score. But the repaid cards can come with some costs.

Most of the cards do not potentially incur overdraft fees-the card acts as a debit card, not a credit card. But ATM fees, or fees tacked on to the cost of goods for using the card-even, in some cases, fees for reloading the card-can add to costs. Some cards come with incentives for signing up, such as quicker access to student loan funds, according to the Wall Street Journal. In those cases the student loans are dumped into the prepaid card.

It is important to note that many of the cards are not typically linked to a bank account. No interest is earned on the money sitting in the debit card account, and money on some prepaid cards may not receive protection under the Federal Deposit Insurance Corp.

Source: Wall Street Journal," Prepaid Cards Go to School," Rachel Louise Ensign, Aug. 25, 2012

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