Standardizing Financial Aid Award Letters as College Cost Disclosures

Mark KantrowitzPublisher of Fastweb and FinAid

October 10, 2012

Nutrition and Energy Labeling

Monroney Window Sticker (Cars)

Schumer Box (Credit Card Solicitation)

Credit Card Act of 2009 (Statements)

Combined Mortgage Disclosure

Private Education Loans (TILA Reg. Z)

The Four C’s

To make informed decisions concerning the tradeoffs between college affordability and college quality, families need information about college costs and financial aid that is Clear Correct Complete Comparable

Award Letter Survey of Students/Parents

84% of students and parents said award letters should be standardized to make them easier to understand and to compare

29% of financial aid award letters did not mention the college’s cost of attendance

61% of financial aid award letters did not include basic info about loan terms, such as interest rates, monthly payments and total payments

64% of award letters did not mention the net price, the difference between the cost of attendance and just grants and scholarships

Most Problematic Practices

Blur the distinction between grants and loans • Failing to label loans as loans• Commingling loans with grants • Presenting a net cost (COA – Aid) instead of a net price (COA – Gift Aid)

• Failing to disclose basic loan info near loan amounts, such as interest rates, monthly payments and total payments (assuming a 10-year repayment term)

Make it difficult for families to compare real college costs for different colleges on an apples-to-apples basis

Confusion of Net Price and Net Cost

Families often confuse net cost with net price• 2012 College Decision Impact Survey included a

survey about net price calculators• After students chose a college, they were asked

whether the net price estimate was close to the EFC • Net cost is almost always close to the EFC• Net price is never close to the EFC except at “no

loans” colleges

More than a third (35%) said yes, 20% said no, 46% said they weren’t sure or don’t remember

Example Problematic Award Letter

Improved Financial Aid Award Letter

Proposal Comparison - Agreement

Requirement CFPB Sen. Franken NASFAA

Standardize Content Yes Yes Yes

Standardize Names/Terminology & Definitions Yes Yes Yes

COA = T&F R&B B&S Transportation Personal Yes Yes Yes

Distinguish Gift Aid from Self-Help Yes Yes Yes

List Assumptions (Enrollment Status, Housing) Yes Yes Yes

List Cumulative Debt Yes Yes Yes

List Estimate of Total Debt at Graduation Yes Yes Yes

List Contact Information & Deadlines Yes Yes Yes

List Cohort Default Rate Yes Yes Link

List Graduation Rate Yes Yes Link

Restrict Delivery Mechanism No No No

Proposal Comparison - Disagreement

Requirement CFPB Sen. Franken NASFAA

Full COA on First Page of Award Letter Yes Yes No

Total Gift Aid on First Page of Award Letter Yes Yes No

Net Price (COA – Gift Aid) on First Page Yes Yes No

List Grants and Loans Separately Yes Yes No

Subtotals after Each Type of Aid Yes Yes No

Must Label Loans with the Word “LOAN” Yes Yes No

List Interest Rate, Monthly Payments (10 Year Term), and Total Payments Near Loan Amounts

Yes Yes No

Standard Format, Order, Placement & Design Yes Yes No

Consumer Testing (Student/Parent Feedback) Yes Yes No

Proposal Comparison – Not Specified

Requirement CFPB Sen. Franken NASFAA

Disclose Front-Loading of Grants -- Yes --

Disclose Outside Scholarship Policies -- Yes --

Downloadable Machine Readable Data Format Yes -- --

Comparison of Net Price with Benchmarks Yes -- --

Comparison of Default Rate with Benchmarks Yes -- --

Disclose Institution Type (Level & Control) Yes -- --

Mandatory Standard -- Yes Optional

Financial Aid Shopping Sheet

Thank You!

Mark Kantrowitz’s student aid policy analysis papers may be found at www.finaid.org/studentaidpolicy

Follow him on Twitter at @mkant