A watchdog found colleges are weaseling students into forking over more money to use certain banks for financial aid. Some are fasting, giving up textbooks, and lighting candles to save on bills.

• Colleges will often enter agreements with banks to give financial aid to students.
• But the CFPB found those agreements can come with significant fees for students who sign on.

College students are probably familiar with the sight of a bank handing out free t-shirts, snacks, and other swag to get them to sign up for a bank account. But a new report shows there might be a more sinister side to the banks lobbying on campus for students' dollars.

Schools' partnerships between major banks like Wells Fargo and PNC may actually lead to students paying more than they might elsewhere, according to an annual report from the Consumer Financial Protection Bureau (CFPB) on student credit cards and bank accounts. The agency used data from 11 bank providers that offered more than 650,000 student accounts at 462 colleges in 2020-21.

It's another data point showing some of the financial burdens associated with higher education, which still remains the most consistent form of economic mobility for many Americans, but can also strap them with a lifetime of debt.

Students who commented to the CFPB about these feeds "mentioned that they had to fast for two days, live for a week 'off a 10lb bag of pancake mix from the local food bank,' use candles to reduce electricity costs, forego textbooks and gas due to fees charged on their accounts,'" the report said. "In one case, a commenter even mentioned that overdraft fees led to a situation where they did not graduate."

Students on financial aid, in particular, might be shouldering more unnecessary fees, CFPB finds. There are a few ways students received the $110 billion in financial aid given out in fiscal year 2021. In some cases, schools will have a third-party servicer handle it which will "provide students with low-cost options to access funds through college-sponsored prepaid and debit cards linked to deposit accounts," CFPB wrote.

But some of those partnerships with third-party providers mean schools are guiding students towards products that cost more than what they might find otherwise, according to the report. In one instance, a third-party provider charged students fees if they deposited less than $300 a month — but deposits for financial aid didn't count.

In 2021, students paid nearly $15.5 million in "account costs," according to the reports. The average student out of the over 668,000 reviewed paid an average of $25.97 on their accounts, with many not making enough income to qualify for the required $300 monthly deposit. Students at for-profit schools saw higher costs for their accounts.

"Many college students trust that schools have their best interests in mind. While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market," CFPB Director Rohit Chopra said in a statement.

The banks also make money from the colleges off these agreements — the report found that colleges paid over $4 million to BankMobile and Herring Bank in 2020-2021, and schools pay providers $11,440 on average per year.

But this results in unnecessary fees for students who participate, including monthly fees, overdraft fees, inactivity fees, and out-of-network ATM fees of up to $3.50. The report said those additional expenses can be "particularly harmful for consumers who live paycheck-to-paycheck and students who may receive only one financial aid disbursement per semester."

Alongside the CFPB report, the Education Department released guidance on a college's responsibility to protect its students and the financial decisions that they make, saying that schools "hold a responsibility to ensure certain products offered to their students are in the best financial interest of those students."

The department said that it's "concerned" schools are not properly disclosing financial information, and along with the CFPB's efforts, it plans to increase oversight over third-party financial arrangements, improve the process schools use to report any partnerships with banks, and coordinate with the CFPB to determine which arrangements are best for students going forward