Feds: City Colleges debit card program is illegal

  • By Peter Sachs
  • Staff Writer
  • July 21, 2009 @ 7:00 AM

The City Colleges must scrap its fee-laden debit card program for student loans because the fees are illegal, the U.S. Department of Education said in a recent letter to the district.

In a July 7 letter, the agency wrote that students can’t be charged fees for using an ATM or visiting a teller to get their money – but the district had been planning to switch to a card program without fees even before getting the letter, officials say.

The letter comes two months after the agency first said the existing program was fine.

“Before receiving this second letter we were already in the process of pursuing other options,” district spokeswoman Elsa Tullos says.

Details of the loan program and associated fees were first reported by the Daily News in  November.

The Education Department reviewed the Chase program this spring after the Daily News inquired about its legality.

The City Colleges started the JPMorgan Chase program at Kennedy-King College last fall as a way to make it easier for students to get their student loan refunds. The refunds are the money that’s left over after a student’s loans pay for tuition and fees. The refunds can often total $2,000 or more per term. Students can use that money for anything, including rent and groceries.

“Clearly, the College Card Program does not meet this regulatory requirement (that there be no fees) since, after the initial withdrawal, charges are assessed for subsequent withdrawals,” William Johnson, a specialist at the agency, wrote in the letter.

Stephanie Babyak, a spokeswoman at the Education Department, said it reversed its own decision after asking the City Colleges some more questions about the debit card program.

While the program was running, the first withdrawal from an ATM or a teller was free but future visits to an ATM cost $2 and talking to a teller cost $10.

“After making our initial determination we looked more closely at the program … and then determined that, contrary to our initial thoughts, the program as implemented was not in compliance,” Babyak wrote in an e-mail yesterday.

Ken Gotsch, the district’s finance director, said last week that Chase is dropping out of the debit card program, and that he’s creating a committee, including students, to find a new program.

“Many student groups, they felt it was a fairly fee-intensive kind of a program,” Gotsch said.

In May, the Department of Education told the City Colleges the program was acceptable since students had other ways of getting their refund money. They could wait for paper checks or get the funds direct-deposited into a bank account, the agency noted.

Though the City Colleges does not face any sanctions for running the debit card program as it did, the Department of Education said it wants a response from the district about how it will fix the program.

“The new program really has to have no withdrawal fees associated with it,” Gotsch said at last week’s meeting.

Tullos says the district will be “in compliance” for the fall term.

Daily News Staff Writer Peter Sachs covers higher education. He can be reached at 773.362.5002, ext. 18, or peter [at] chitowndailynews [dot] org.