"College and universities routinely send financial aid letters to prospective students that are utterly confusing. New legislation would require these letters to be uniform and easy to understand.
It’s college acceptance time. And for most students, learning where you got in is followed closely by the question, how am I going to pay? The answer comes in complicated financial award letters. And, actually, those letters don’t always have the answers. They are often filled with confusing terms, a whole lot of jargon. And the numbers are all over the map.
NPR’s Elissa Nadworny has been trying to sort all this out." …
Why do I have a recollection that there has already been at least one effort to standardize and simplify financial aid award letters? Maybe it was just an agreement among a certain group of colleges (e.g. the Ivy League)?
I wouldn’t necessarily standardize to the point of turning them into a form letter, but I would standardize the language used - require them to spell out what each component is, and whether they are grants/scholarship, or whether the money has to be paid back. I would also include the terms of both payback of loans (when do the accrue interest, when are payments required), and the terms to retain scholarships.
It would be nice if letters also included information regarding the percentage of student who retain their scholarships (particularly if they require a high GPA), but that could be misleading - just because 80% of students retain their scholarships doesn’t mean you have an 80% chance of doing so, but if only 20% retain them, it should be a red flag.
Definitely about time. The thing that irked me the most way back when was a college that listed Parent PLUS loans in a way to make it look like aid.
The aid letter looked something like this:
Cost of Attendance $60,000
Aid Awarded:
College Grant/Scholarship $10,000
Work Study $4,500
Student Loans: $5,500
Parent PLUS Loan: $40,000
Balance owed after all aid: -0-
So the bottom line looked like a full need award – but most of it was parent loans, which of course the parents are allowed to borrow at any college.
I’d like to see the cost of attendance reflected as subtracting out ONLY the grants/scholarships. Something like this (using the same example numbers above):
Cost of Attendance: $60,000
College Grant/Scholarship: $10,000
Balance Owed: $50,000
And then the other items listed separately, with a clear statement that work-study money is contingent on the student obtaining campus employment (and perhaps listing the average hourly wage for first-year students at that college?)
Imagine that; Truth in Lending for Education, just like with a mortgage?
Wow, such a radical concept.
I guess we’ll wait for a student loan crisis (S&L, Mortgage, insert next crisis here) before we do anything.
Looks to me like we are shutting the gate a little late for many already drowning in student loan debt.
Schools have been asked to do this for some time now. It’s just that some new & frankly very minor changes have been proposed. I used the old letter & now I use the proposed letter. The new one allows me to add the PLUS loan, and it is offset from the other awards (which I think is good).
I always add my own school letter, as well, with further explanations.
I don’t know how well people really read any of it, but the financial aid community continually tries to do what it can to help people understand.
Loans should not be an aid awarded line item. Work study should not be an aid awarded line item. This document should absolutely be a standardized document. It should not take help from the financial community to comprehend, it should be clear.
In addition to a separate section, maybe the loan interest rate and origination fees should be listed alongside each loan.
When my kids applied to colleges, I transferred all info to a spreadsheet and had a “they pay” and “we pay” set of columns. Even so, I found it hard to do direct comparisons because of variations in how they handled COA.
Neither of my kids was able to earn their full work study allotment their first two years, either. By junior year my DD was more savvy and found a much better paying position, but before that it was low hourly pay and very hard to schedule enough hours around classes.
The new award letter format requires interest rates to be listed with the loans … but 2019-2020 interest rates will not be determined until May 2019, so the rates used may not be correct (I had to use 18-19 rates, since I do not have a crystal ball).
The new letter is a step in the right direction, but it still looks like the new form won’t show parent plus loan interest rate and origination fee. Many people with good credit find a better deal than parent plus loans with their current 7.6% interest rate and 4.248% origination fee.
One thing that drives me nuts is that many schools do not include mandatory health insurance in their COA estimate. If the student is not covered elsewhere this can add $1K-$3K to the annual bill, a not insignificant number for many people, which often comes as a last minute surprise.
AND…Parent Plus loan offers need to be clearly identified with words like: “for qualified parents who agree to apply and accept”…so that families don’t assume that they’re a given.
Worse, I recently saw a FA pkg with MANY line items that included a couple of grants/ a couple of merit/2 student loans/WS offered…but then it had a Parent Plus loan of $20…AND it had a “bottom line” number that the parents would pay $13k.
So at first the parents thought that their cost would be $13k per year until I pointed out that within all those line items was the $20k Parent Plus loan (that they could not do).
Since it is the law of the land that everyone must be covered by health insurance, it is not unreasonable to expect that the student will be covered whether in or out of school … so the case can be made that this is not an educational cost. However, it may be buried in the personal expenses estimate.n (P.S., some schools will adjust COA for health insurance cost, if you request it … but that might result only in increased sub eligibility or increased Parent PLUS eligibility).
And you think Truth in Lending is standard and clear?
Lenders spend a lot of time moving charges and application fees OUT of the boxes so they don’t become part of the APR. I don’t want colleges to do that.
However, I agree that the schools could easy follow a standard format that ABC are grants and not required to be repaid, that XYZ are loans and must be repaid, that the current interest rate is X but can rise or fall on July 1 of each year…
Not having Insurance will no longer be penalized under federal law in 2019 taxes, but some states still have requirements.
TILA requirements for this purpose will result in increased compliance, meaning more staff necessary to make sure the complicated rules are followed. I do not maintain a preferred lender list for my school because I would have to comply with TILA, and I just cannot take on that added compliance burden. We have to find a way to figure out what is best for students without making it too difficult for schools to comply.
If the schools didn’t have anything to do with the loans, another agency would have to be set up to issue them. The school would have to confirm that the student was registered and had the need for the loan, then the loan would have to be disbursed to the student and guess what? The schools would rarely see the $$$.