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Why government-endorsed prepaid cards for students should come with a warning

A government plan to partner with financial institutions to issue students a prepaid card with some of their loan dollars has consumer advocates concerned.

The Office of Federal Student Aid released a draft solicitation for proposals this month for companies interested in participating in a pilot program to create a card student-loan borrowers could use to access some of their money. The card aims to make it easier for borrowers to manage their refunds — the money that’s left over after a college applies the loan to billable charges, like tuition and fees.

Wayne Johnson, the head of the Office of Federal Student Aid, described the product as a “very robust payment instrument” with no fees that marries a variety of banking technology, including peer-to-peer payments and security alerts.

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