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In the Fight Over Financial Aid Award Letters, Students Must be Heard

Published:  October 25, 2012

A slew of recent reports dealing with student debt make crystal clear that students need to be better informed about the financial aid packages that colleges are offering them. Too often, colleges are not upfront about the amount of debt they are asking students to take on – leaving these individuals without even a basic understanding of how much they will be on the hook for once they leave school.

This argument is made most explicitly in a report released this month entitled “Lost Without a Map: A Survey About Students’ Experiences Navigating the Financial Aid Process.” The firm NERA Economic Consulting and the advocacy group Young Invincibles surveyed 13,000 students and recent graduates with an average debt of more than $75,000, and found that about a quarter of respondents with federal loans and nearly half of those with private loans felt that they had not received accurate information about their financial aid from their schools. As a result of the lack of adequate guidance, many students who take on extremely high levels of debt “do not have a clear idea about the consequences of the loans they take out, with many experiencing misunderstanding or surprise regarding repayment terms and interest rates,” the report states.

Those surveyed clearly believe that colleges have a responsibility to ensure that students understand their student aid options. In fact, more than 90 percent of the respondents agreed that the financial aid award letters that most colleges send out each spring need to be standardized to make the forms easier to understand and compare – with “common definitions and clear terms” to describe the schools’ student aid offerings.

As my colleague Rachel Fishman has argued, this certainly isn’t the case now:

Current financial aid award letters make it difficult for all but the savviest of students to figure out their financial aid. Fundamental questions like ‘How much will I owe when I graduate?’ and ‘What will my monthly payments be?’ are seemingly hidden, often making the college look like a better deal than it actually is. Many schools package scholarships, grants, work study, and loans all together yielding one seemingly gigantic ‘award,’ even though students will have to pay the loans back. Some letters are riddled with jargon and acronyms, making it almost impossible for students to understand whether the aid is a loan or a grant.

Over the last year, federal officials have recognized these problems and taken steps to address them. In July, the U.S. Department of Education and the Consumer Financial Protection Bureau (CFPB) released the student aid “shopping sheet,” a model financial aid award letter that they are urging colleges to adopt. The shopping sheet provides a much clearer picture of what students and their families will be on the hook for after all grant and scholarship aid is taken into account. Colleges that participate must, among other things, provide an estimate of what students’ monthly payments will be for any loans they recommend students take out.

Sen. Al Franken would go further. The Democratic Senator from Minnesota has introduced a bill that would require all colleges to use a standard award letter that would be developed by the Education Department. “My legislation will require schools to use a universal financial aid letter so students and their families will know exactly how much college will cost,” Franken said when he introduced the bill in May.

It’s unclear, however, how successful these efforts will be. So far the loudest voice in the debate over standardizing award letters has been the National Association of Student Financial Aid Administrators, which has expressed serious reservations about even the voluntary “shopping sheet.” The group opposes “a one-size fits all” requirement that would limit the flexibility of colleges “to design a financial aid award letter that best meets the needs of their unique student populations.”

NASFAA’s argument may have some merit. But is it really more important to protect the flexibility of college administrators than to ensure that students are truly informed about their aid options before taking on debt they’ll be repaying for years?

Who would be best suited to make the case that this reform is vitally needed? Judging from the report that NERA and the Young Invincibles put out, the answer is obvious: students and recent graduates. Sure, the sample that these organizations surveyed was seriously skewed to those who have taken on an inordinate amount of debt. But it’s hard to imagine that many students would object to legislation that aims to stop colleges from misleading them.

So far, students have largely been absent from this debate, as few probably know that this issue is under discussion. Supporters of standardizing award letters need to change that. They should work with student advocacy groups to get the word out on campuses and among recent graduates, and they should reach out to college newspaper editors and student government associations throughout the country to take a stand in this fight. In addition, they should make a concerted effort to get the leaders of local, state, and national college access programs – who are all too familiar with the tricks some colleges play with their award letters – to rally behind the cause.

In Washington, nearly all higher education lobbying groups claim to speak on behalf of students. But in this important battle over financial aid award letters, students need to speak out for themselves.

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