Charging Convenience Fees for Our Kids

by Tom Yamachika, President, Tax Foundation Hawaii

Back in the Dark Ages when I was going to public school here in Honolulu, I could get my school lunch for a quarter.  An extra half-pint carton of milk was a dime.  Nowadays, a school lunch costs $2.75 for most kids, and for those who qualify for low-income treatment, it costs 40 cents.

But there is a catch, as Kirstin Downey, formerly a reporter for Civil Beat, has recently pointed out.

In modern times, our Department of Education relies upon online accounts.  Parents can deposit money into those accounts, and the proper amount is taken out every time a kid eats lunch.  

The catch is that when money goes into the account, the folks providing the online account pinch a little.  They call it a “convenience fee.”  The convenience fee used to be 80 cents per transaction plus 5 percent.  So, if you as a parent ponied up 25 bucks, the convenience fee would have been $2.05, and the $27.05 would pay for lunch for nine school days, roughly two weeks.  (The provider says that the convenience fee is charged by the school or school district, but we all know who keeps the money.)

Even our DOE couldn’t stomach that, so in 2018 they selected a new provider which charged 13 cents plus 1.99% of each deposit.  That brought down the convenience fee on a $25 deposit to 63 cents, but that still adds up over the course of a school year.

To make things worse, many providers put limits on the amount of dollars that a school lunch account can hold, $200 for example, so that multiple deposits are required each year, and so there are multiple opportunities for convenience fees to be charged.

The problem with these convenience fees is that they are structured to hurt everyone.  If a family makes a big deposit, the percentage fee looms large.  If the deposits are small and frequent, the per-transaction flat fees bite harder.  Families of limited means might not be able to afford a big deposit simply because they are living from one paycheck to the next.  And, of course, none of the account providers pay interest on deposited funds even though most if not all of them are subsidiaries of substantial financial institutions.

What parents might not know is that the schools are required, by federal law, to provide fee-free options.  So, if you send your kid to school with cash or a check, the school is supposed to credit your kid’s school lunch account with no convenience fee.  (I personally wouldn’t send my kid to school with a wad of cash, as I remember days when gangs of kids would accost other kids and “borrow” their lunch money but weren’t paying back the money that they took.)  And if the school says, “Sorry, we can’t accept cash or personal checks,” then the U.S. Department of Agriculture (which administers and subsidizes the school lunch program) will have something to say about that.

USDA recently announced that it wants schools to stop charging convenience fees to low-income families and has given the schools until the 2027-28 school year to get it done.  But in 2027-28 a different President than now will hold the reins of government, and who knows whether the Trump Administration will carry out this plan.

In the meantime, parents, know that there are options.  It may be worth it to you to pony up the extra 63 cents on a $25 deposit every couple of weeks.  If it is, fine.  If it’s not, please look into the other options.  You don’t need to have an automated service hijacking money from your keiki.