In the fight to keep the nation’s 1.5 trillion student loan bill from growing, the Office of Federal Student Aid (FSA) may have just won a small victory. In its memo published on Monday, the FSA issued a number best practices for colleges and universities to adopt when distributing student financial aid letters.
Though a seemingly minor issue, numerous reports indicate that confusing financial aid offers can lead to students taking out excessive high interest loans in order to cover unexpected tuition costs. New America and uAspire’s 2018 study examines the clearness of 11,000 financial aid letters. Their research shows 70% of the letters fail to differentiate between types of aid, half do not give instructions as how to accept or reject an offer, and one-third do not provide net cost calculations. Moreover, the report finds Pell Grant recipients, the most needful of all student borrowers, often still require an additional $12,000—almost double the amount of a Pell Grant—to cover their remaining bill. Adopting a universal award letter template, standard language, and tuition disclosures will go a long way in helping students and their families better understand their financial aid awards, or lack thereof.
The memo does not establish a template to be used by postsecondary institutions, but of the eight recommendations provided in the document, four focus on clarifying the type of aid offered. FSA makes common sense suggestions, like actually including the cost of attendance and separating student loans from Parent PLUS loans—which have significantly different repayment schedules and interest rates. It also includes less astute recommendations: “Given that many institutions deliver these offers via electronic communication, calling them a ‘letter’ can also be confusing.”
FSA’s guidance, on its face, is not sufficient to address the concern that students often do not understand what they are buying or how they are going to pay for it. Aid letters only account for one academic year and frequently determine tuition rates based on a 12-hour enrollment as opposed to the more common 16-hour registration. Net costs, if included in the letter at all, are calculated on average expenses for room, board, books, rather than the student’s actual bill.
To be fair, schools cannot anticipate which residence hall a student will be assigned or how many hours they will take, but failing to disclose these caveats is simply negligent.
Additionally, the memo fails to recommend standard language use beyond using the terms “financial aid offer” or “college finance” rather than an “award,” a suggestion I think makes an important distinction between the gift of money (grant) and the financing of purchase (loan).
That said, adopting clear, universal terminology regarding the types of funding offered will help reduce confusion when interpreting aid packages. The New America/uAspire study notes schools use 136 unique terms or phrases for federal unsubsidized loans. 24 of the represented institutions failed to use the word “loan” in their award letters. How can students be expected to make informed decisions about their education and subsequent financing if schools are acting in bad faith?
FSA’s guidance is just that, guidance. It’s unclear if the Office has the authority to author a dear colleague letter or promulgate regulations, but issuing this memo demonstrates the Administration’s awareness of a problem only previously identified by Sen. Chuck Grassley and former Sen. Al Franken. Their bipartisan bill has since fallen into legislative purgatory but stands a good chance in resurfacing as the Higher Education Act reauthorization efforts continue in the Senate.
The memo does not fully address all of the problems associated with financial aid award letters—pardon me, college financing notices—but it does move the conversation in the right direction. It highlights the need to create context around aid packages as it pertains to total college costs. It also prepares colleges and universities to transition to using the College Financing Plan template, a retooled version of the Obama Administration’s Shopping Sheet.
When it comes to helping students reduce their educational debt burdens, let’s take our wins where we can get them.