Students, beware of college bank accounts

Here's an economics story that's picked up some traction on American college campuses, and with good reason.

A recent study by the Center for Responsible Lending (CRL) said those checking accounts and debit cards that some banks offer, often co-branded by some colleges and universities and can even be used as a form of student ID, often contain "abusive" overdraft fees.

The CRL research paper noted these arrangements with the banks can be very desirable for colleges and universities, which may get a cut of the bank's revenue on student transactions or assistance with the school's federal financial aid disbursement.

At the same time, the CRL said, these co-branded or co-sponsored accounts and cards can be quite lucrative to the financial institutions involved, "not only because of the fee income and exclusivity, but because they are a very effective pipeline to new customers."

"Once a consumer chooses a bank, they are unlikely to switch," it added, "and reaching college students allows banks to attract a new, likely long-term, customer base."

Students who take part, however, can face financial pitfalls. The CRL said despite claiming to have low up-front costs, many of these bank accounts are no better than what students could find on their own.

According to the study, "all but one of the student bank products surveyed included high-cost overdraft fees similar to those on more generally available bank accounts -- allowing students to incur over $100 in overdrafts in one day." That can put a student's financial aid funds at risk.

"Don't assume that your school is offering the best account that is on the market for you," Leslie Parrish, the CRL's deputy research director and one of the study's authors, told the Ohio State University Lantern student newspaper on Monday.

Mac Clouse, a finance professor at the University of Denver's Daniels College of Business, said new college students need to look closer at these co-branded accounts. "Students are not very good shoppers when it comes to banks," he told CBS MoneyWatch.

"You've got people who are financially naïve, and they really don't understand the consequences of all of these things that go on with their accounts," Clouse continued. "They view this only as transactions ... and they don't think of those consequences of what happens when they have overdrafts or returned checks."

Clouse's suggestion to parents: "Work with your sons and daughters, and increase their awareness about managing their own finances."