Standardizing Financial Aid Award Letters as College Cost Disclosures Mark Kantrowitz Publisher 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 RequirementCFPBSen. FrankenNASFAA Standardize ContentYes Standardize Names/Terminology & DefinitionsYes COA = T&F R&B B&S Transportation PersonalYes Distinguish Gift Aid from Self-HelpYes List Assumptions (Enrollment Status, Housing)Yes List Cumulative DebtYes List Estimate of Total Debt at GraduationYes List Contact Information & DeadlinesYes List Cohort Default RateYes Link List Graduation RateYes Link Restrict Delivery MechanismNo

Proposal Comparison - Disagreement RequirementCFPBSen. FrankenNASFAA Full COA on First Page of Award LetterYes No Total Gift Aid on First Page of Award LetterYes No Net Price (COA – Gift Aid) on First PageYes No List Grants and Loans SeparatelyYes No Subtotals after Each Type of AidYes No Must Label Loans with the Word “LOAN”Yes No List Interest Rate, Monthly Payments (10 Year Term), and Total Payments Near Loan Amounts Yes No Standard Format, Order, Placement & DesignYes No Consumer Testing (Student/Parent Feedback)Yes No

Proposal Comparison – Not Specified RequirementCFPBSen. FrankenNASFAA Disclose Front-Loading of Grants--Yes-- Disclose Outside Scholarship Policies--Yes-- Downloadable Machine Readable Data FormatYes-- Comparison of Net Price with BenchmarksYes-- Comparison of Default Rate with BenchmarksYes-- Disclose Institution Type (Level & Control)Yes-- Mandatory Standard--YesOptional

Financial Aid Shopping Sheet

Thank You! Mark Kantrowitz’s student aid policy analysis papers may be found at Follow him on Twitter