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Higher One College-Payments Company Said to Seek Buyout

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Aug. 2 (Bloomberg) -- Higher One Holdings Inc., the college-payment processor founded by three Yale University students, is seeking a buyer and has contacted private-equity firms, according to three people with knowledge of the talks.

Higher One is using Goldman Sachs Group Inc. to canvass potential buyers, said the people, who requested anonymity because the matter is private. The New Haven, Connecticut-based company’s market value topped $600 million yesterday and its shares jumped 7.9 percent today.

Higher One vies with units of SLM Corp. and Pittsburgh-based PNC Financial Services Group Inc., helping schools switch from paper systems for billing and processing tuition and refunds to electronic payments. The company serves about 6.2 million students and more than 800 campuses. It also offers online banking and debit-card services to students.

“The opportunity here is really to take what is a paper process, a manual process, and electronify it through the debit card and an online banking account,” said Christopher Shutler, a William Blair & Co. analyst who covers financial-technology firms. “You’d be surprised the number of schools, particularly community colleges, that still will issue paper checks” for student refunds, he said.

Higher One advanced 88 cents to $12 today in New York and earlier climbed as much as 22 percent, the most in more than two years. The stock has dropped 35 percent this year.

Overdraft Fees

The company doesn’t comment on “rumor or speculation” as a matter of policy, said Ken Goff, a Higher One spokesman. “We continue to be committed to our market and serving our customers.” Goldman Sachs’s Tiffany Galvin declined to comment.

The Federal Deposit Insurance Corp. told Higher One in February 2011 that it would fine the firm for incorrectly charging overdraft fees to customer accounts since 2008, the company said in a May regulatory filing. It had refunded $4.7 million in fees as of March 31, the filing shows.

Higher One is close to settling the FDIC investigation, the Associated Press reported on July 20, citing two people with direct knowledge of the matter whom it didn’t identify because an agreement hadn’t been signed.

Regulatory scrutiny prompted at least one private-equity firm to end talks with Higher One, one of the people said.

Customer Lawsuit

Higher One customer Sherry McFall sued the company in federal court in Los Angeles on April 18 and accused the firm of failing to disclose fees and costs associated with opening accounts. She seeks to represent other students in a class-action, or group lawsuit, seeking at least $5 million in damages, according to her complaint.

The lawsuit “may have just put them in a position where selling seemed to be one option for them,” said Beth Robertson, a payments-industry analyst at Javelin Strategy & Research, based in Pleasanton, California. “They’ve faced a lot of problems and financial repercussions as a result of these accusations.”

A buyout would help Higher One “get the business name associated with another brand and cleaned up so that they don’t have this bad press image and bad image with students,” she said.

The U.S. Public Interest Research Group said in a May report that campus debit-card programs sometimes charge fees that are “unnecessary and unfair” and that companies use “aggressive” marketing.

Democrats, CFPB

The report highlighted Higher One’s role, saying one in eight recipients of federal financial aid receive disbursements through a Higher One account. In June, U.S. Senator Dick Durbin of Illinois and U.S. Representative George Miller of California, both Democrats, asked the Department of Education and Consumer Financial Protection Bureau to review PIRG’s findings.

Some of PIRG’s conclusions were overblown or didn’t apply to Higher One, Chief Executive Officer Mark Volchek said in a June presentation. Volchek founded the company in 2000 with fellow students Miles Lasater and Sean Glass.

Lightyear Capital LLC, a New York-based private-equity firm, is Higher One’s largest shareholder, with a 25 stake as of March, according to a regulatory filing. The holding stems from a $75 million investment in 2008.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net; Laura J. Keller in New York at lkeller12@bloomberg.net

To contact the editors responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net; David Scheer at dscheer@bloomberg.net

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