Higher One's Future Cloudy as Fees Investigated, Stock Price Drops, Executives Depart
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“They Thought it Was Required”
The business model Higher One developed was simple: Partner with banks to offer student accounts. The banks invest the money. Higher One offers schools bargain-basement prices to distribute refunds and collects fees in the process. Those fees, which include foreign ATM, PIN, overdraft and interchange charges paid by merchants, are Higher One’s cash cow. As previously mentioned, until recently fees accounted for 70 to 80 percent of the company’s income, peaking at 88 percent in 2009, Securities and Exchange Commission filings show.
To make money, Higher One must convince as many students as possible to open its bank accounts. The company does so through emails, mailings, posters, websites, social media and word of mouth. For every school, it creates a “co-branded” debit card students must use to claim their refunds. The cards sometimes double as student IDs.
The strategy is successful. Almost 2.2 million students have accounts with the company.
But critics charge that students are “captive customers.” Higher One’s relentless marketing and co-branding leads students to believe their schools endorse the company or opening a Higher One account is required to collect refunds.
William Campbell, a student at Western Washington State, said that happened at his school where 80 percent of students signed up for Higher One accounts. “The number one reason they gave why was because they thought it was required,” Campbell told the Consumer Financial Protection Bureau last fall.
According to Higher One’s Lemoine, that co-branding and aggressive marketing are necessary to ensure that students don’t throw away the card.
Once students have their cards, the company’s website gives them three refund options: open a Higher One account and get money that day; send the refund to an existing account and be able to access the funds in two to three business days; or request a paper check and wait five to seven business days.
Some students and litigation against the company charge Higher One erects obstacles to refund options other than its accounts. Students sending refunds to an existing account, for example, must mail, fax or scan and send bank information. Litigation charges that the two- to three-day delay for a bank transfer is artificial.
Lemoine says the company does not delay refunds and needs the paperwork because of “the importance of having a hard signature” if a student makes a mistake.
Students who opt for paper checks, meanwhile, complain of waits up to a month or more. In 2012, a nearly month-long wait for a check almost cost University of Montana student David Schaad the opportunity to study in Vietnam. “I almost didn’t go,” Schaad said in an interview. “I felt, to be honest, very angry.”
Lemoine said in a separate statement that Higher One “regret(s) the inconvenience that Mr. Schaad experienced.” “Checks getting lost in the mail is the exact problem that Higher One’s system solves and a reason why schools recommend that students choose to receive their refund electronically,” she added.
The GAO’s report, meanwhile, concluded that debit card providers and schools fail to adequately disclose refund options to students. It recommended that federal officials write new rules requiring “objective and neutral information on options.”
Southern Connecticut State University Silent on Higher One
It’s indisputable that Higher One saves schools money. Financial aid officials rave about the company. Higher One brags that 98 percent of schools renew their contracts.
But critics say schools are selling out their students to save a few bucks. Victor Mendoza, former student trustee of De Anza College in California, who tried unsuccessfully to get his college to dump Higher One, said schools have a conflict of interest. “What sticks with me from that experience is that the board of trustees has a vastly different point of view on what constitutes a good deal for our students,” Mendoza told the Consumer Financial Protection Bureau last October. “What may be a good deal for a governing board is not necessarily one that’s good for the students, and the administration has more power than we do.”
Southern Connecticut State University is the only state public institution in Connecticut that uses Higher One. Its contract obligates it to “promote and encourage use of” the company’s accounts even though it has an existing agreement with Wepawaug-Flagg Credit Union to provide student accounts.
The credit union offers services that are very competitive with Higher One’s. It does not, for example, charge Higher One’s much-maligned 50-cent fee to use its card for debit transactions, and has nine ATMs on campus compared to Higher One’s one ATM, which is in a building closed weekends, nights and school holidays. Southern’s student brochure, meanwhile, lists the company’s controversial debit card fee as a PIN charge, but does not explain it.
Southern officials have declined an interview request and asked for questions in writing, but only answered a handful that sought statistical information.
“Other than that, we have no further comment on this issue,” spokesman Patrick Dilger wrote in an email.