11/16/2011 04:42 pm ET Updated Jan 16, 2012

AmEx Enters Higher Education Marketplace With Prepaid Student Accounts

By: Robyn Gee

Students at the University of North Florida now only need one item in their wallet to get around campus: their student ID. Starting on November 2, American Express launched a partnership with the university that connects each student ID to an AmEx prepaid debit account. The accounts are available to any student that wants one.

According to Tully Burnett, Associate Director of Auxiliary Services at UNF, the program has only launched at UNF so far. "At UNF we're not afraid to be the first people to do things."

Previously, students could load cash onto their student ID card in the form of "Ozzie Bucks", which are accepted at campus merchants, printing, copying and laundry services on campus, as well as a few select off-campus merchants. "It was this closed loop network," Burnett said. "Students have a need to make other purchases outside that network. Parents give students a bank debit card but then they can overdraw, and they're hit with big bank fees. We wanted to put the functionality of a prepaid debit card on an ID card," said Burnett.

The student ID still has the Ozzie Bucks account because the laundry and printing facilities only accept Ozzie Bucks. But the prepaid AmEx account on the card can be used at any business worldwide that accepts AmEx. Students will not build credit history by having this card, because the activity will not be available to any credit bureaus.

According to Burnett, the AmEx account comes with roadside protection and fraud protection just like a traditional credit card. In addition, normal banks will often approve debit card transactions even if there are insufficient funds in the account, and then charge the account owner an overdraft fee. "The AmEx prepaid card will just decline transaction if you try to overdraw. Of course you could be embarrassed trying to make the purchase, but that's part of learning how to manage your money," said Burnett.

But is learning how to manage one's money with an AmEx account wise in today's world of student debt? For example, a world where, recently, hundreds of students at UC Berkeley pretested against the 81 percent potential increase in their four-year tuition?

Pete Coe, Financial Aid Specialist at City College of San Francisco, said it could especially be disadvantageous to students who come from low-income backgrounds. "Students from disadvantaged backgrounds tend to have more difficulty balancing their personal finances, so obviously a student ID card that doubles as a cash card would not be terribly helpful in that regard," said Coe.

In addition, he foresees other risks. "I'm speculating, but potentially there could be a higher risk of identity theft, either within campus or generally, because you have a student identification card that is linked to a personal bank card that essentially acts like cash. Students may think that one card is more convenient than two, but it's always good to have your money separate from a card that, not only has your name and picture on it, but also identifies you as a student."

In fact, Coe thinks this is just a way for the university to generate revenue. "It doesn't really give a consumer advantage--in terms of the withdrawal fees it's actually quite expensive to use," said Coe.

Burnett did not deny this-- he explained that when the purchases are made with prepaid debit account, they charge a discount fee to the merchant. AmEx will share a portion of that fee with the university. "Being able to partner with a company like AmEx is good for us," said Burnett.

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