Some student loan refunds could soon come via plastic

As part of its efforts to modernize the way students interact with the student loan process, the U.S. Department of Education has released the notice of its upcoming Request for Proposal (RFP) for a pilot program to issue payment cards to students that make it easier for their institutions to process student loan and Pell grant refunds.

The draft RFP also was released, with the formal solicitation expected on or about Feb. 2 and the pilot program to begin in late spring 2018.

The card and a related mobile app will work very similarly to a bank’s
checking account and debit card, but without a bank’s overdraft capability.

The launch of the Federal Student Aid (FSA) Next Gen Payment Card pilot program is the latest iteration of the department’s broader strategy to implement a “mobile-first, mobile-complete, mobile-continuous digital platform” aimed at providing “easier, more seamless and more frequent customer interactions,” according to the draft RFP.

When student loans and Pell grants are awarded, they are paid directly to the college or university. It often happens that after covering the cost of tuition and fees, there are funds left over. Currently the schools refund the balance to students in a variety of ways, including manual checks, cards, ACH, even cash. Students can use the refunds to pay for books, food, utility bills — any of the myriad expenses students face while in college.

In this pilot, the participating schools would be able to deposit the balance to students’ cards, and notify them of their available funds.

The participating vendor(s) would be required to design and provide a mobile app, myMoney, through which the schools can deposit the balance to students’ cards, and the students can add money, send money, and pay bills.

The department sees this app as a financial transaction account that can replace a standard bank account — “[in] essence, the FSA Payment Card account should function as ‘e-banking’ at its best,” the RFP states.

The app also has to integrate with the existing framework for the myStudentAid FSA “Super Portal” app, which also serves as the portal for other apps, including:

• myFAFSA, which allows students, parents and preparers to complete the federal student aid application.
• mySchools, which allows schools to provide customized content to students.
• myLoans, which provides a single interactive site for students’ personal loan portfolios.

The RFP specifies that prospective vendors may be able to use data on users for “cross marketing” purposes, but requires that every individual user must be allowed to opt in.

In addition to the mobile app, students enrolled in the pilot program will get a card, which must be compatible with commercial ATM standards so that they can make cash withdrawals. The students must be able to electronically generate paper checks in cases where a vendor can’t accept e-payments, such as rent payments to landlords.

There are security requirements for both the physical card and the mobile app, including that the program is compliant with all federal and banking regulator mandated security, including cybersecurity measures.

The pilot program must include many features, but the RFP also identifies future capabilities that prospective vendors should address in their proposals, such as peer-to-peer transfer of funds, third-party transfers (such as from parents or employers), and the ability to impose restrictions on the types of products, services, and/or merchants the students may use.

The pilot program will be offered at up to four schools, with up to 25,000 “customers” (students) at each school or school system.

The RFP specifies that the program must be “free” for participating students and schools alike. “Please note that this will, in all likelihood, be the first financial services product introduced to a student which could then lead to a long-term, even life-long, relationship for other financial services and products,” the RFP points out.

Reach the reporter at pwaitster@gmail.com and follow her on Twitter @WaitPatience and @edscoop_news.