NerdWallet's Smart Money Podcast - Money in Your Pocket: Biden's Bid to Banish College Junk Fees

Episode Date: March 27, 2024

Neera Tanden, domestic policy advisor to President Biden, discusses the fight against junk fees impacting college students. What hidden “junk fees” are college students facing? How is the Biden Administration addressing fees to make higher education more affordable? Hosts Sean Pyles and Anna Helhoski discuss the Biden Administration's recent efforts to combat junk fees in colleges, from financial products marketed to students like credit cards and bank accounts to textbook costs and unused meal plan dollars. They speak with Neera Tanden, domestic policy advisor to President Biden, about the more than $1 billion annual impact of these fees and the bipartisan support she expects for some of these policies. Then, in this week's Money News roundup, Sean and Anna discuss issues with the new FAFSA, the Federal Reserve's latest stance on interest rates, and continuing surge of home sales. Get a comprehensive overview of the latest developments affecting your finances and gain valuable insights to stay ahead in an ever-changing economic environment, whether you're a student navigating the labyrinth of college fees or a homeowner keeping tabs on market trends. In their conversation, the Nerds discuss: hidden fees, FAFSA troubles, Federal Reserve, interest rates, housing market, college fees, student finances, financial aid, junk fees, textbook costs, student loans, college expenses, student banking, origination fees, meal plans, tuition bills, open-source textbooks, college affordability, financial literacy, student debt, financial aid applications, existing homes, home prices, National Association of Realtors, mortgage rates, economic indicators, market trends, financial decisions, and personal finance. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we are turning once again to junk fees, those annoying surprise surcharges that hike up the cost of what you're already paying for. Things like credit card late fees, resort fees at hotels, service fees for event ticketing, and seat selection on airlines. That's right, Sean. The Biden administration has been crusading against hidden junk fees for more

than a year. And earlier this month, the administration announced its latest actions to alleviate the burden of junk fees, this time at colleges and in federal student lending. Biden wants to get rid of the fees college students pay for financial products marketed to students like credit cards and bank accounts. He also wants to eliminate textbook fees that are folded into tuition bills and wants to require colleges to return unused meal plan dollars to students. And finally, Biden wants to get rid of origination fees included in federal student loans. Yep. I spoke with Neera Tanden, domestic policy advisor to Biden. Here's what she had to say. We think it's vital that college is more affordable, not less affordable. We know

how expensive college is. But these fees are really ways in which universities and institutions can use the fact that they have a hold over students. Students are engaged in college there. They're enrolled. It's not easy to transfer. It's not easy to move. And so the college has a lot of power and sway. And these are ways that consumers, your students, are forced to pay for things that they should be able to look at cheaper costs. So, Ana, let's break down the college-related junk fees that Biden wants to eliminate, starting with student banking products. Colleges and universities often have affiliations with financial institutions to offer bank accounts and credit cards to students. But those products charged with the administration cause high and unusual fees,

such as fees for insufficient funds, account maintenance, and closures. Right. And the reason we need to do away with these additional costs is because financial institutions have largely phased out those fees anyway, except when it comes to students. Another fee the administration wants to get rid of is a particularly annoying one for any student who had to pay a textbook or course materials fee as part of their tuition. Yes. For a long time, many colleges and universities have used textbooks as part of a line item that students must pay for in their tuition bills, regardless of how much those textbooks actually cost on the market. So Biden wants to make it mandatory for students to authorize a charge on their tuition bills for textbooks and other course materials. This change would allow students to refuse the charge and find cheaper alternatives or eliminate the expense altogether by accessing free open-source textbooks.

Here's another, let's say, quirk of being a college student. A lot of times students have to purchase meal plans for their college or university. Those meal plans are usually used for things like dining hall meals or as flex dollars to spend on food elsewhere on campus. But when the semester ends, the college snatches back any remaining funds. That usually forces students to spend that money before the end of the semester, or they forfeit the money. To be clear, that's money the student already paid, and often with student loans. Here's what Neera Tanden had to say.

The student meal plan is a great example of students who don't use their whole meal plan. They are saving money in ways. They're eating off campus, but they get charged the full amount. And that's really a way in which the university is basically taking in a few more dollars when students can feel so stretched around those resources. This hits hard because way back when I was a college sophomore, I was going to lose my dining dollars by the end of the semester. So I stocked up on as many bottles of iced tea and bags of chips that I could carry. And another friend bought school merch she 100% did not need or want at the campus store. But what else are we going to do? Just give up the money?

Yeah, I guess this really does prove that constraint and being a broke college student trying to get your money's worth really does breed creativity. But it's important to note that all of the actions we just talked about can be done solely through the executive branch in a process known as negotiated rulemaking. That means the Biden administration can create these rules without approval from Congress. Yep, those actions don't need the okay from lawmakers. But the final junk don't need the okay from lawmakers, but the final junk fee proposal that Biden's making will need approval. And it's probably the action with the most potential impact.

That's eliminating the origination fee on federal student loans. For listeners who aren't familiar with origination fees, they are considered a processing fee on federal student loans. The fee equals a percentage of the loan amount, and it gets tacked onto the loan balance. That means the borrowers pay interest on the fee over the life of the loan, which makes the loan even more expensive. Here's what Neera Tanden had to say about origination

fees. It's really a relic of the past, these student loan origination fees, where students can be charged 1% for undergraduate loans. It's 4% for graduate and parent loans. And that can just get tacked on to your costs so that it just means an additional hundreds of dollars, thousands of dollars even for students. There really is no reason for it at this point where the federal government is originating really most fees. And what she means by relic of the past is a reference to where origination fees came from. Their purpose was to offset costs to the private lenders that originated student loans. Before 2010, the federal government only backed or guaranteed loans made by private lenders. But in 2010, that all changed and the federal government began to exclusively lend directly.

So in that sense, origination fees haven't been relevant for a long time. And they're expensive, too. lend directly. So in that sense, origination fees haven't been relevant for a long time. And they're expensive, too. The administration estimates that borrowers spend more than $1 billion annually on these fees. If the measure to get rid of origination fees is approved, it would apply to all loans made moving forward. That's right. And I want to emphasize the if in what you just said. Origination fees will only hit the road if Congress approves the proposal, which was included in Biden's 2025 budget. I asked Neera Tanden if she thinks getting rid of origination fees will have bipartisan support in Congress. Republicans have welcomed ways to cut back on taxes for people. This is really just a tax on student borrowing. And it makes really no sense. It's a tax on student borrowing that was created for a time where there was mostly private sector funding. And now we don't have

that. There's really no rationale for this. So it really should be a bipartisan or nonpartisan issue. Well, I guess we'll have to see how this shakes out in Congress. I guess so, Sean. Up next, a few money headlines from the last few days. So, Sean, we just spent some time talking about all the fees that college students have to pay, but that's not all they're facing these days. Hmm, let me guess. The FAFSA. Yep, the Free Application for Federal Student Aid.

Just when we thought we were out of this mess, it pulls us back in. For those who haven't been following along, toward the end of last year, the Department of Education said it had produced a new financial aid application. Well, that ended up having problems. Then it was fixed, and then it had problems again. Meantime, the clock is ticking on people getting applications in and schools being able to process them. At this point, some high school seniors are wondering if they'll have to decide on a college without knowing what kind of financial aid they'll get.

They're facing admission decision deadlines. And last Friday, the Ed Department announced that a vendor's calculation errors meant hundreds of thousands of student aid applications were wrong. And they'd already been sent to schools' aid offices. The mistake could mean that students wouldn't get the financial aid offers they're qualified for. So all of those will have to be resubmitted to the schools at a time when the offers are already supposed to be going out to the students. As you said, quite the mess, or more accurately, messes. Ana, are you tired of higher interest rates yet?

You know, Sean, I would be if I carried a credit card balance or if I was in the market for a mortgage or a car loan, but my savings account continues to do a happy dance. Well, last week, the Federal Reserve's Open Market Committee decided to leave the benchmark federal funds rate at around 5.3% for now, but indicated that it's still on track for three rate cuts of a quarter point as the year goes on. Yeah, that's despite the fact that economic indicators show we're not out of the woods on inflation. So basically, status quo for now, but that savings account you mentioned could see some changes before the year is out. We mentioned mortgages, and apparently some homebuyers are tired of waiting for interest rates to come down even further. Sales of existing homes rose 9.5% in February

from a year earlier. Yeah, and the National Association of Realtors says part of that is because of a 10% year-over-year bump in available inventory. So more homes are on the market, but that doesn't mean that there's enough housing stock to meet demand. There is not. So prices are rising again. The median existing home price jumped 5.7% from last year to $384,500. And here's an interesting tidbit. The biggest jump in sales was for homes with an asking price of over $1 million. a 37% increase, Sean. Ugh, that was not because of me. No, me either.

And that's what we saw and heard over the past week in Money News. Let us know what we missed and send us the headlines you've seen and wanna hear more about. That's it for this week's Money News. We always welcome your money questions and comments. Turn to the nerds and call or text us

on the nerd hotline at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Figlin and edited by Rick Vanderknecht. Sarah Brink mixed our audio. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational

and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.