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WASHINGTON -- The U.S. Department of Education is proposing new regulations on campus debit cards that would prohibit certain fees, restrict marketing activities, and require colleges to disclose their relationships with card providers.

Department officials this week circulated a first draft of the proposal to members of a rule-making panel that is in the process of negotiating the regulations. Under the plan, campus debit cards that students use to get access to federal aid would not be able to charge ATM usage, account maintenance, or overdraft fees. 

In addition, colleges would also have to post their agreements with debit card providers online would be barred from offering cards that are "co-branded" with the institution's logo or mascot. 

The proposal reflects many of the changes that consumer advocates -- and some government watchdogs -- have been seeking, though the department’s plan would still permit revenue-sharing agreements and debit card swipe fees.

“I'm happy with this draft proposal as a starting point,” said Christine Lindstrom, who directs U.S. PIRG’s higher education program and is a member of the rule making panel. “We are moving in the right direction, especially in terms of the bans on some of the most egregious fees and the ban on co-branding of the cards.”

Higher One, the largest campus debit card provider, which is also represented on the federal panel, said the company was still reviewing the proposal. 

"At first glance, however, it appears the new rules have the potential to create new barriers for students who want to get their refunds immediately, additional administrative responsibilities for colleges and universities, and increased potential for fraud since paper checks could still be heavily relied upon," said Mark Volchek, who is Higher One's chief executive officer. 

State Authorization

The department also circulated a first rewrite of its “state authorization” rule, which the department stopped enforcing in 2012 after a federal appeals court upheld a lower court’s decision to strike down the regulation on procedural grounds. It required distance education programs to seek permission from state regulators in each and every state in which they enroll students. 

The new proposal imposes a similar requirement but also adds flexibility for how online programs can become authorized in multiple states. Under the department’s plan, programs would be able to become authorized outside of their home state through the typical state approval process, state-to-state agreements, or entering into a reciprocity consortium.

Other Issues

In addition, officials released new proposals regarding state authorization of foreign institutions, how clock hours are converted into credit hours, and rules on when students are eligible to receive federal aid for courses they need to retake.

Officials have not yet provided draft language for a final, controversial topic: new eligibility standards on Parent PLUS loans.

The rule making panel convenes here next Wednesday for the second of three rounds of negotiations.  

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