A proposed payment card with financial aid money on it wouldn’t stop college students from using it on liquor or a tattoo, the Education Department’s head of federal student aid said.
Still, steps would be taken to try to ensure taxpayers’ money is used responsibly, the Office of Federal Student Aid’s Chief Operating Officer A. Wayne Johnson told Bloomberg Government Jan. 23.
The card is part of a larger app the office is working on to build “long-term, engaged communication relationship” with millions of borrowers holding $1.3 trillion in federal student debt, Johnson said.
Senate Democrats, financial aid administrators and higher education advocates are concerned how the office would use and protect student data from the cards. Johnson cast the program as a way to provide financial counseling to students.
Johnson said that if students had a card with refunded tuition dollars, an app on their smartphone would track their purchases. If a student was making a purchase at a tattoo parlor or a liquor store, the app would send the student a notification asking if he or she was sure of using the funds that way.
According to a draft contract solicitation involving the card, the Education Department is seeking the capability to limit where the cards could be used. Johnson, though, characterized the technology as safeguards against misuse of stolen or lost cards, not restrictions on where the rightful cardholders could shop.
“Are we going to put ourselves into a situation where we’re going to start saying, ‘You can or you can’t?’ The answer is no,” he said in an interview with Bloomberg Government. “Are we going to have the technology to remind you and help coach you in how you’re spending the money? Very likely.”
“We have a duty to be a responsible lender,” he told Bloomberg Government. “We have a duty to make sure you’re responsibly using the money that has been entrusted to you by the taxpayer.”
What is responsible spending can be difficult to determine, said Justin Draeger, president of the National Association of Student Financial Aid Administrators. Draeger said he supports the program, but isn’t convinced students blowing financial aid on tattoos and trips to Cancun is a widespread issue.
The privacy of students’ data is another sticking point. In a letter to Johnson, Sens. Dick Durbin (D-Ill.) and Elizabeth Warren (D-Mass.) joined three other Senate Democrats asking how the department would “safeguard students’ personal and financial information from fraud, data breach, and misuse.”
Even if all the concerns are addressed, senators and advocates have questioned why the program needs to exist in the first place. Colleges are currently sending students refunds without major issues, said Colleen Campbell, associate director for postsecondary education at the Center for American Progress.
“By engaging in this prepaid card program, they’re diverting significant resources and time toward something for which there is no demand and for something that does not address the problems that currently exist in the federal student aid system,” she said.
For Johnson, the card and the larger app is a way for the department to connect with students throughout their time in college and as they pay off their loans. That’s why the app would be packed with features including spending and saving goals and a rewards program.
“The only communication linkage we’ll have with students is when they have to interface with their student loans,” he said. “We want to have the opportunity to set up a connectivity point up so we can start an ongoing dialogue with the student.”
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