Sallie Mae’s new no-fee student checking account will help save college students money and help the education-based financial-services company increase revenue from fees schools pay for financial disbursement deposits, one observer contends.
Sallie Mae on March 21 launched a no-fee student checking account through its bank subsidiary. The program enables universities to disburse financial aid and tuition refunds directly to accountholders. Students also may access the funds through a debit MasterCard for no-fee PIN and signature-based point of sale transactions (
“Sallie Mae lost a lot of revenue because of the Student Aid and Fiscal Responsibility Act and needs to rebuild,” Christine Pratt, senior analyst with Boston-based Aite Group LLC, tells PaymentsSource.
President Obama signed the legislation into law last year. It enables the federal government to directly loan to students instead of using private financial institutions as middlemen. The act also eliminated the guarantor function and service Sallie Mae provided. Sallie Mae earned a fee when it processed a loan guarantee for a guarantor client as well as a maintenance fee for the life of the loan, according to Sallie Mae.
“This no-fee student checking account provides a new source of revenue and also enables Sallie Mae to cross-sell its products and potentially gain new customers it normally would not be able to access, Pratt says.
For example, students signing up for the accounts receive a debit MasterCard, but they also may sign up for a separate prepaid MasterCard Sallie Mae offers. Parents also may decide to bank with Sallie Mae because their child or children bank there, and both students and parents may stay with the bank for a long time, she explains.
Moreover, if parents and students open credit or prepaid card accounts, Sallie Mae will receive the entire interchange amount because it issues the cards directly, Pratt says. The revenue from the university deposits and from its new customers will help Sallie Mae “build its business back up,” Pratt notes.
Salle Mae set up its platform so students have near-immediate access to their funds and may pay bills directly from the checking account, Mark Moroz, Sallie Mae senior director, tells PaymentsSource.
Accountholders may add funds to the account by sending paper checks to Sallie Mae’s processing center, or they may electronically deposit funds using the automated clearinghouse network, Moroz says. The paper deposits take four or five days to clear.
“We also plan to add a mobile component this summer enabling accountholders to deposit checks through remote-deposit capture to expedite the deposit process,” Moroz notes.
“The checking account is free for universities, but some schools may have to pay transaction fees on items such as ACH processing, check processing and, in some cases, processing void transactions,” Moroz says. Sallie Mae also receives interchange fees from purchases made with its cards, which helps to minimize the cost of its products to students, Moroz adds.
The no-fee student checking account becomes available May 1 to all colleges and universities in the United States. William Carey University, which has campuses in Mississippi and Louisiana, is the first school to publicly announce it will offer the program to its students.
