I’ve worked on some radio spots for MPR on the new financial reporting tool being touted by the federal by the Consumer Financial Protection Bureau, so I’ll be putting out some coverage tomorrow morning.
(My original understanding was about right, though.)
Here’s the write-up by the Associated Press:
The true cost of college may soon be easier to
The Consumer Financial Protection Bureau and Department of
Education on Tuesday announced a project to simplify the financial
aid award letters that colleges mail out to students each spring.
The goal is to help families compare costs of various schools more
As it stands, critics say colleges often obscure the inclusion
of student loans in financial aid packages to appear more
For example, the letters often highlight an “out-of-pocket
price” that subtracts the amount students would have to borrow to
bridge costs. Now federal officials want feedback from the public
on a “financial aid shopping sheet.”
The draft version of the form, available at
http://tinyurl.com/3ve57mt , makes clear distinctions between
scholarships and loans; it also includes key figures such as the
estimated monthly payment and total debt upon graduation.
“The stakes have never been higher for students and their
families to clearly understand the costs and risks of student
loans,” said Raj Date, an official with the Consumer Financial
Protection Bureau. “Having a simple, one-page financial aid
shopping sheet would help students compare offers and choose the
one that’s right for them.”
A final version of the form, expected in coming months, could
also include the school’s graduation and loan defaults rates.
The Department of Education was required to develop the model
form as part of the Higher Education Opportunity Act of 2008. The
adoption of the simplified forms would initially be voluntary, but
Congress could vote to make it mandatory for schools that receive
federal financial aid.
The push to standardize financial aid award letters comes at a
time when students are borrowing more than ever to keep up with
soaring tuitions. The Institute for College Access & Success
estimates that two-thirds of graduates have student loans, with an
average debt of about $24,000.
One reason for the ballooning debt loads is that students don’t
always realize how much their loans will end up costing them.
That’s partly the result of the “jargon-laden financial aid award
letters using inconsistent terms and calculations,” federal
officials said in the release announcing the new initiative.
In testimony at an Education Department hearing on the matter
last month, financial aid expert Mark Kantrowitz noted that college
is one of the few major life expenses that do not come with
standardized disclosures about costs.
Kantrowitz, who publishes FinAid.org, noted that the financial
aid letters don’t always distinguish between grants and loans and
often don’t include basic information on loan terms, such as
Yet if a student took out $24,000 in student loans, the interest
charges alone would add up to $9,100 if repaid in 10 years. That’s
assuming the favorable interest rate of 6.8 percent that federal
student loans carry; interest rates on private loans can be higher.
Making matters worse, critics say schools play an ambiguous role
in pushing student loans.
“The first financial adviser that a student runs into is a
financial aid officer at the college,” said Anthony Ogorek,
financial adviser in Williamsville, N.Y. “Students needs to
understand that these officers don’t have a fiduciary
responsibility to them.”
Families have also been conditioned to believe that a college
education is an investment that will pay for itself, Ogorek said.
As a result families often take on huge debt loads without
questioning whether it makes sense financially. With many graduates
struggling to find work in the tight job market, the risk of taking
on big debt burdens is becoming a harsh reality.
The plan to simplify financial aid forms is modeled after the
approach that the Consumer Financial Protection Bureau took in
revamping mortgage disclosures. Earlier this year, the agency began
its “Know Before You Owe” project to simplify the paperwork
borrowers receive when applying for a mortgage. Critics say
improved disclosures could have helped prevent many of the past
problems surrounding the subprime mortgage crisis.