Over the next several months, along with college admissions offers, high school seniors will get financial aid letters from schools that illustrate how they might pay for tuition. For students and their parents, deciphering the letters from most schools is almost impossible.
Each uses different formats, difficult-to-understand abbreviations or mixes together loans and grants, blurring the lines between the two and creating confusion. The worst offenders suggest students are getting a great deal. No one polices these practices. Unlike when buying a car or a house, or signing up for a credit card, there are no standardized disclosure forms schools are required to hand out.
"Millions of students enroll in college every year based on confusing and misleading award letter information," Laura Keane, chief policy officer of uAspire, told the Senate Health, Education, Labor & Pensions Committee recently as the panel considers ideas to renew the Higher Education Act, which governs federal student aid programs.
uAspire is a nonprofit that promotes college access, and over the last few months it teamed up with the think tank New America to analyze some 11,000 financial aid letters from more than 900 colleges.
The groups found that more than one-third of the letters failed to include any cost information on the page that listed the financial aid awards. That's like walking into a department store and not finding price tags on any of the racks. Fewer than one-third of the letters split out different types of aid under separate headings, showing students how much money they are getting in grants and scholarships and what needs to be repaid as loans.
Perhaps most problematic is the rampant jargon and confusing language in the letters. For example, uAspire and New America found 454 letters that offered "Federal Direct Unsubsidized Loans"-- loans that have interest accumulating while a student is in school. Even though federal loans are common to every school, the groups found 143 unique titles for how the loans appeared in financial aid offers.
The financial aid process is confusing even to those of us who have covered the industry for years. I can't imagine the plight of parents and students thrown into the labyrinth anew each year.
A few years ago, to see how students and parents compare these letters, I sat in on financial aid sessions that guidance counselors at a high school outside of Orlando were holding for seniors. After years of searching for just the right college, it had come down to a last-minute decision for these families, who had just a week to place an enrollment deposit at a college.
One of the meetings I observed was with a student named Matt, whose top picks were in the Northeast: Drexel, Villanova, Fordham and Hofstra universities. On a small table, the counselor spread out the financial aid offers. As he went through them one by one, he glanced at his own homemade cheat sheet that he put together using Excel, neatly separating loans from grants and scholarships.
Segregating them made it simple to compare offers. Matt's mom asked why all the offers factored in loans before they got to the bottom line of what Matt and his family would be expected to contribute. "What if we have to take out more loans to make up the gap?" Matt's mom asked. The counselor nodded. It's in this confusion where over-borrowing for college begins.
The loan column on the counselor's spreadsheet broke down the types of loans. Two of the schools, Drexel and Villanova, included a Parent PLUS Loan in the financial aid package. Drexel's parent loan was more than $15,000 for the first year. The counselor explained that Matt's mom would need to apply for this separately and was responsible for paying it back.
These government-backed loans have become a popular way in recent years for parents to pay for their children's college educations; the amount of Parent PLUS loans doubled in the last decade. In some cases, parents have nowhere else to turn; it is essentially the last choice for parents desperate to send their sons and daughters to their first-choice school. The result has been a huge run-up in the size of these loans at some schools. Drexel, for instance, saw the average size of its Parent PLUS loan nearly triple since 2000, to some $24,000.
As a parting gift, the counselor gave his spreadsheet to Matt. In the hallway, Matt's mom started asking me questions she didn't get to ask the counselor. It was clear she was worried about the size of the parent loans. "What if we need to take those out all four years?" she asked. They could be in the hole for more than $60,000. She explained to me that Matt was the oldest of three children and that she and her husband recently increased their contributions to their retirement plans at work. Now, she was considering stopping those contributions altogether.
I explained that I was far from an expert on paying for college, but most financial planners discourage parents from forgoing retirement savings to pay for their children's college education. After all, you can't take out a loan to pay for retirement. When I caught up with Matt a few weeks later, he told me he decided to go to Fordham because it offered the best deal for his parents.
Previous efforts within higher education and the Obama administration to standardize these letters have fallen way short of their goals -- something clearly demonstrated by the results of the uAspire and New America research.
"At the very least, it would be helpful for colleges to use the same terms for all federal sources of aid and be required to show the full cost of attendance, net price and unmet need," said Robert Kelchen, an assistant professor of higher education at Seton Hall University.
The frustrations of students such as Matt show that if colleges accept federal aid for their students, they should be required to follow a standard template for their award letters, much like lenders do for home loans. A college degree is one of the most expensive purchases students and their parents will make, and it should be just as easy to figure out how much it's going to cost as if you were buying a house or a car.