Guest Commentary: Beware The College Financial Aid Letter

Guest Commentary: Beware The College Financial Aid Letter

Students and families need to review financial aid offers carefully, writes Bob Hildreth, to avoid a debt burden they didn't expect. (Jacquelyn Martin/AP)

Students and families need to review financial aid offers carefully, writes Bob Hildreth, to avoid a debt burden they didn’t expect. (Jacquelyn Martin/AP)

By Bob Hildreth

This is the time of year when students and their parents pack a light lunch or an overnight bag and head off to visit colleges. Some may be aware that these highly orchestrated guided tours are marketing tools. After all, colleges are in a high-stakes competition with one another to attract students and money. That’s capitalism.

Families later receive a second big marketing job: the financial aid letter. Unfortunately it hides more than it reveals.

Specifically, it obscures the real cost of going to college and the means of paying for it. Colleges, in which we put so much trust, knowingly draft confusing and deceptive financial aid letters to make their value look better than it actually is.

According to Mark Kantrowitz, a financial aid consultant with, the letters “are designed to convince the family that the college costs less and is more affordable than it really is.”

So where does the deception come in? It’s mainly with student loans. Most colleges conceal loans next to grants and scholarships. But loans have to be paid back and should never be mixed with aid that is free.

The greatest omission is not providing loan terms. If you buy a house or a car, the law requires that you receive loan information. But colleges and universities and their lobby down in Washington press to retain their complete discretion over how they draft their letters – and that means they are not legally required to disclose their terms. Colleges and universities have become one of the most effective lobbies in Washington, employing more lobbyists last year than any other industries except drug manufacturing and technology. They have teeth!

The reasoning of the lobby is simple: Complete knowledge of loans would scare off students.

The lobby is correct. If students knew the real costs of the loans, they would scare.

The letters show only one year of borrowing, when almost all students must borrow for four. The letters make no mention of interest, which starts to accrue the moment a student walks into college and accumulates to be as much as the principal in many cases. The letters are blind to the fact that severe penalties are placed on anyone who falls behind or defaults on these loans.

If they had this information, students might select a cheaper school requiring fewer loans, maybe a public over a private school.

Where does the U.S. Department of Education stand in all of this? The department knows that these deceptive practices are widespread. To eliminate any wiggle room for deception, in 2012 it introduced a simple and effective sample financial aid letter, called the Financial Aid Shopping Sheet. This sample letter is a voluntary standard recommended to colleges by the federal government. It clearly identifies the total cost of attendance, specifies the amount of financial aid in the form of grants and scholarships in a separate section from from loans and work-study and shows the true net cost to families.

Nevertheless, fewer than half of colleges now use it. And many that do use it do so only for veterans, a sign of just how much many colleges resist real change. The Washington Post reports that “The colleges with the most egregious practices have so far refused to adopt the Financial Aid Shopping Sheet and are unlikely to do so until it is required by law.”

If we are serious about making college affordable again and reducing the student loan debt, we must change the college financial aid letter.

  • Samuel Sitar

    schools are breaking the law by not disclosing loan terms. make schools obey the law. all of us must help schools obey they law. making them use the Financial Aid Shopping Sheet is a good firs step.

  • Dave

    Can the debt be challenged if it says “aid” on the letter but is actually a loan? I just found out that the aid my sons college told me he had was actually a loan, which fundamentally changed the decision to select that college.

  • EileenOLeary

    As someone who has been a financial aid administrator at a private college for over 30 years, I am both heartened and discouraged by your post. Indeed, students and their families must be well informed about possible debt load prior to selecting a college or university, and they must not only make their academic but also their financial decisions with eyes wide open. But some of the comments in this post are incorrect or at best misleading. First, the majority of public and public and private colleges and universities are not looking to dupe their future alumni. Their award notifications are straightforward and easy to understand. But this is not always the case. Indeed their are some who seek to obfuscate the financial realities – but these are in the minority in my experience. Second, interest does not start to accrue for most students when they “walk into college.” Most students borrow from the federal direct subsidized student loan program first and these loans do not accrue interest during in-school enrollment periods. Only federal unsubsidized student and parent loans accrue interest immediately. The loans you are referring to are most probably private education loans over which most colleges have no control and typically advise against. Third, the National Association of Student Financial Aid Administrators (NASFAA) – whose membership serves over 90% of all students nationwide – has ethical standards to which members must adhere. These standards include providing open, honest, easy to understand information on net cost of attendance after gift aid and the amount of loans offered. And fourth, while I would agree that the universal use of the Federal Shopping Sheet would allow for apples to apples comparison of schools, the structure as it now exists is too confining to provide sufficient information in it’s one-page format. More work needs to be done to improve both presentation and content, prior to its move to universality. I believe that the higher education of our citizenry is the stalwart of our economy and democracy. Articles that address complex issues with a single negative brush can be counterproductive.

    • Kim Urquiola

      Thank you, Eileen, for the clarification. It was helpful.

    • Koreen McQuilton

      Thank you for sharing this perspective. My experience as a parent of two daughters that have attended a private university and received grants, scholarships, and yes, student loans, could not be more different than the one described by this author. Prospective students and parents need to take responsibility for educating themselves about financial aid. All of the schools that my daughters’ were accepted to made clear and detailed information available online about the actual cost of attendance, grants, scholarship opportunities, and ways to finance their education (including student and parent loans). Award letters clearly indicated the funding source. All of the schools provided financial aid education sessions during campus visits before and after enrollment. Financial institutions that funded the loans made clear the loan terms and interest rates and students receive promissory notes that detail their responsibilities as a borrower. It is hard to see where trickery and deception come in.

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