Prepaid debit cards are becoming the de facto debit cards for a growing number of people these days. This is partially because issuers are promoting the heck out of them and partially because people, especially younger people, view them as preferable to a traditional bank account. As a result, a small number of colleges are experimenting with — and profiting from — hybrid student ID cards that are also prepaid debit cards. Is this a clever way for cash-strapped schools to avoid socking students with yet another tuition hike, or are colleges doing their students a disservice?
There are a couple of reasons why these cards got popular in the first place: Issuers like them because there’s no lending risk (you’re spending your own money) and because they can earn higher interchange fees from merchants. People told interviewers in a recent focus group they like prepaid cards because they like the built-in discipline, and because they really, really hate bank fees. They also griped about prepaid debit card fees, but said card companies present them in an understandable, up-front way, which banks don’t do.