Business Strategy

The U.S. Department of Agriculture announced that students eligible for free or reduced price school meals cannot be charged processing fees beginning in 2027.School districts currently work with processing companies to offer cashless payment systems for families. But the companies can charge “processing fees” for each transaction. By law, students who are eligible for reduced price meals cannot be charged more than 30 cents for breakfast and 40 cents for lunch. With processing fees, however, families can end up paying 10 times that amount. Processing companies charge as much as $3.25 or 4% to 5% per transaction, according to a recent report from the Consumer Financial Protection Bureau.For families with lower incomes who can’t afford to load large sums in one go, processing fees can arrive weekly or even more frequently, increasing costs disproportionately. Families that qualify for free or reduced lunch pay as much as 60 cents per dollar in fees when paying for school lunches electronically, according to the report.The new Agriculture Department’s policy becomes effective starting in the 2027-2028 school year. With this rule, the USDA will lower costs for families with income under 185% of federal poverty guidelines, which equals $57,720 for a family of four.”USDA and schools across America share the common goal of nourishing schoolchildren and giving them the fuel they need to learn, grow and thrive,” said Agriculture Secretary Tom Vilsack in a statement Friday. “While today’s action to eliminate extra fees for lower-income households is a major step in the right direction, the most equitable path forward is to offer every child access to healthy school meals at no cost. We will continue to work with Congress to move toward that goal so all kids have the nutrition they need to reach their full potential.”The decision by the USDA follows a CFPB report that found online school meal payments predominantly affect low-income families. School lunch fees collectively cost families upwards of $100 million each year, according to the report.The U.S. Department of Agriculture has mandated that school districts inform families of their options since 2017, but even when parents are aware, having to pay by cash or check to avoid fees can be burdensome.”It’s just massively inconvenient,” said Joanna Roa, 43, who works at Clemson University in South Carolina as a library specialist and has two school-aged children.Roa said that when her son was in first grade and she saw the $3.25-per-transaction fee for lunch account transactions, she and her husband decided to send him to school with packed lunches instead.”A dollar here and there, I expected,” she said. “But $3.25 per transaction, especially here in rural South Carolina where the cost of living is a lot lower as are the salaries is a lot.”Roa said packing lunch for two kids every day became a burden in both time and effort for two working parents. For the past two years, thanks to surplus funds, her school district has been providing free school lunches which has changed the equation, but Roa said that could end at any point.In its review of the 300 largest public school districts in the U.S., the CFPB found that 87% of sampled districts contract with payment processors. Within those districts, the companies charge an average of $2.37 or 4.4% of the total transaction, each time money is added to a child’s account.While payment companies maintain that school districts can negotiate fees and rates before they agree to contracts, the CFPB found that complex company structures “may insulate companies from competition and make school districts less likely to negotiate.” Just three companies MySchoolBucks, SchoolCafe, and LINQ Connect dominate the market, according to the report.Without the ability to choose which company to work with, “families have fewer ways to avoid harmful practices,” the agency said, “including those that may violate federal consumer protection law.”