The Department of Education is considering using prepaid bank cards that would carry surplus student loan funds. 

The Department of Education is floating the idea of giving students prepaid bank cards that would hold surplus student loan funds. Currently, the Department of Education sends student loan funds to higher education institutions directly who manage tuition payment. The surplus funds are deposited into the student recipient’s bank account, but sometimes it’s disbursed as cash.

Moving forward, the Education Department is looking for a contractor to support the initiative, known as the Federal Student Aid Next Gen Payment Card Program Pilot. As many as 100,000 students over four schools would have the option to opt into the program. Once opted in, the students would have their spending habits tracked by the Department, and they would receive feedback to ensure they are spending the money on books, rent or food.

This pilot program is part of the Department's mandate to broaden and modernize the student loan system. If a student was to opt-in, the prepaid card would be linked to a student loan mobile app that gives students access to loan information. This app would allow students to track how they spend their loan funds, and it would also offer important information regarding their loan payments.

At a glance, it is unclear whether this will be a good idea.

Not everyone is happy with these changes. Some critics question what will be done with the data that the prepaid card collects. While the card itself can be regulated, the Department has so far claimed they will only monitor, not restrict, purchases.

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This has left many questioning the validity of such a card program. There are several issues with the card pilot program.

A predominant issue is the lack of oversight for the use of surplus funds; however, not much is really changing since students already have the ability to spend these funds and without any sort of oversight.

Interestingly, some critics would have a problem with what is done with the data collected by the Department of Education. In the right hands, this could be fairly useful data to capitalize on.

On top of this, other skeptics would point out that sending out thousands of prepaid cards with links to FSA accounts simply creates more opportunities for scammers, identity fraudsters, and card information scrapers to steal personal and financial information.

There are plenty of reasons to doubt the program, but there are also reasons to support it. If done right, it could help the Department of Education collect data on, and potentially regulate, a frivolous spending problem in the student loan industry. If done wrong, it could lead to the loss of taxpayer funds or even the compromising of student loan borrower information. At any rate, the idea is still in development, so it’ll be some time before any sort of full implementation.

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