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) - Check cashing services may provide convenience for college students when tuition refund checks arrive, but the cons may outweigh the pros.
According to a recent study, "The Assessment of Unbanked U.S. College Students and Use of Nontraditional Banking Products," one contributing factor of the popularity of check cashing services among college students is that approximately 3 million American college students don't have checking or savings accounts of their own. In addition, 20 percent of college students avoid the banking system and cash checks, carrying cash.
"Often, these students turn to check cashing services to generate cash when they need it -- especially when large tuition refund checks arrive," says Mary Johnson, a financial literacy expert at Higher One. "However, what they fail to realize is the considerable fees check cashing services charge and how unsafe it is to carry large amounts of cash."
Most check cashing services charge exorbitant fees that students might not realize until it is too late -- sometimes as high as 6 percent. These fees can be especially high if the check is for a large amount, such as a student financial aid check.
According to Higher One
), a company that partners with colleges to reduce the use of paper checks by distributing financial aid electronically to students' bank accounts, the average financial aid check is more than $1,400 -- that's a lot of cash to carry around. But many students choose to manage large amounts of cash without going through a bank. In fact, the aforementioned study also showed that 646,000 current college students who reported receiving financial aid also reported having cashed a check outside a bank through a check cashing service or similar business that can charge exorbitant fees.
"Financial aid dollars may be the first time students have access to large sums of money," says Johnson. "Non-traditional students may have had bad experiences with accounts in the past, and younger adults may not have had as much experience with banks."
No matter why students don't use bank accounts now, the benefits of using them include smart money management because you can keep track of spending with transaction records. It's important to educate students about how bank accounts can be as quick and convenient as a check cashing service, but safer with FDIC insurance and fraud protection, Johnson notes.