Why students need standardized financial-aid-package letters

Apples and oranges -- and confusing

Raj Date of the Consumer Financial Protection Bureau told an audience at the University of Minnesota yesterday why colleges need a comprehensive, standardized format for financial-aid-package letters:

Once challenge that students face is comparing financial aid information from different schools. … It’s important to be able make side-by-side comparisons. But when prospective students open their financial aid offer letters, they find different colleges often use different terms and different formats.

On one school’s financial aid letter, it might say that the student’s financial aid would include an “alternative loan,” while another school calls that exact same loan an “institutional loan.”

Or, my favorite is (that) schools sometimes use their own acronyms without ever explaining what those acronyms mean. …

I saw one award letter recently that (said) a student’s package would include $600 for a PHEAA, without explaining anywhere that this is a loan, this PHEAA. Because these terms are not clear, students and families might not be able to tell which school is more expensive over the long run. So instead, too many students end up focused only on the immediate out-of-pocket costs. …

Another problem is that financial aid award letters don’t offer information on all the different places that students can get loans. …

A third problem is that student’s can’t easily determine how much debt is too much debt. Financial aid award letters often don’t even estimate what a student’s total debt or total monthly payment will be even though that information is readily available.

Instead, students take a leap of faith that whatever they will owe will be affordable in four years or in 10 years or in 20 years. For students to be able to assess their ability to repay in the future, they have to consider the probability of completing their degrees and forecast their future earnings, as well as understand the terms of their loan.

Now transparency alone isn’t going to fix the problem of rising college costs, but it can spur competition among schools and among lenders. And it will enhance a more fair market, where people will better understand the terms of what they’re signing up for.

Given the substantial investment that families make in higher education, clearer information can help make sure that students and families take on the levels of debt that make the most sense for them.”