Heading to campus with laptops, backpacks and prepaid cards

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Roughly 20 million students will head off to college this fall, their backpacks stuffed with new books, notepads and the latest gadgetry suited for higher education. Many college students will also opt for a new financial tool, a prepaid debit card, to keep their money on track while away from home.

“For many young people, college is the first time that they will independently manage their money without their parents,” says Gail Cunnighman, spokesperson for the National Foundation for Credit Counseling, (NFCC). “It is particularly important that college students understand the new financial tools available.”

The NFCC promotes prepaid cards as a way to control spending and as a good introduction to managing money for those with little experience. Additionally, the cards are popular with Generation Y: one in five already use prepaid. The cards fit with student lifestyles in a number of ways. Most prepaid programs provide several ways for cardholders to access cash without incurring fees including use of in-network ATMs, surcharge-free ATMs, free online balance inquiry, free cash back with purchase and free electronic bill pay.

There are also often options for savings accounts where students (and parents) can track their spending online or through immediate text alerts instead of trying to keep track of cash and receipts. Also, unlike cash, the value on a prepaid card can be replaced if the card is lost or stolen. Finally, because all funds on the cards are prepaid, the cards help students avoid accumulating credit card debt and costly interest charges.(This is especially critical since in 2009 84 percent of undergraduates had at least one credit card and 50 percent had 4 or more credit cards.)

There are currently two types of prepaid cards being marketed to students. The Network Branded Prepaid Card Association (NBPCA) offers the following tips about each for students and parents considering the cards:

Student cards

* A student card is a general purpose prepaid debit card that can be purchased for the student online, at a financial institution or at a retail location like 7-Eleven or Walmart. Students can load funds through a recurring direct deposit or through deposits at retail locations.

* If students plan to regularly directly deposit funds to the card from parents and/or an employer, a student card can be a good option because the funds are available to be used immediately without the need to head to a brick-and-mortar bank.

* Make sure to plan out how to use the card. Students should compare fees among cards for services such as monthly maintenance, ATM, transaction and customer service. Many cards offer free online balance and text alerts and will waive monthly fees for cardholders who opt for direct deposit.

* Any card a student picks should come with FDIC insurance and the card brand’s zero-liability policies for lost or stolen cards. This will protect students against fraudulent purchases. Make sure to register the card to receive all of the fraud and loss prevention benefits.

Campus cards

* Campus cards are offered by educational institutions and provide multiple services on one device, which provides students with convenience and flexibility. In addition to acting as a prepaid card, the campus card is also the ID card that students use to access dorm rooms or campus buildings, utilize campus transportation, buy books and other school supplies and eat in campus cafeterias. Additionally, any work study disbursements or wages that a student earns at an on-campus job could be directly deposited into the card account.

* If the student plans to use the card on campus to buy meals, books, student services and receive financial aid, the campus card can be highly convenient to keep finances organized in one place.

* Make sure that the card offers convenient access to fee-free ATMs. Campus card programs should have ATMs located on the school’s campus, in institutionally-owned or operated facilities or immediately adjacent to and accessible from the campus.

* Before the account is opened, read the terms and conditions that outline the fees and other costs associated with the account. There should be no cost to open the account or initially receive a campus card.

“As they become more widely adopted and offer increasing benefits specifically for young people, prepaid cards are fast becoming favorites of college students”, says Kirsten Trusko, president and executive director of the NBPCA. “The cards offer easy access to money needed for life on their own, encourage budgeting and allow students to avoid debt and interest. Like all financial services, it’s important to examine all the options available and make the right choice depending on a student’s needs.”