The financial aid letters that colleges send to families are misleading, even deceptive. This makes it nearly impossible for families to know what they will pay for college, known as a college’s net price. This occurs because federal law does not require colleges to give families financial aid information in a clear and consistent way as it does for mortgages or credit cards.

Student financial aid is no small matter. The U.S. Department of Education fiscal year 2021 payout for student financial aid through grant and loan programs was nearly $112 billion.

This problem is not a recent development.

Twenty-five years ago, a 1998 report from a congressionally-created Commission on the Cost of Higher Education said that “…most institutions of higher education have permitted a veil of obscurity to settle over their financial operations [while] parents are interested simply in what they will have to pay when their children go to college.” (Full disclosure: I was the commission’s executive director)

A new report from the U.S. General Accountability Office includes an analysis of more than 522 family financial aid offers made between January 2021 and November 2022 from a nationally representative sample of 176 U.S. colleges.

These aid letters contained information on grants, loans, and work-study options. GAO evaluated the letters against 10 best practices recommended by the U.S. Department of Education in 2019 and a separate 2020 Financial Literacy and Education Commission.

GAO found only 9% of colleges accurately report the out-of-pocket money families will pay to attend, with around 63% of colleges following five or fewer of the ten best practices. No college in the sample followed all 10 best practices.

Here are three other key findings:

  • Forty-one percent of schools do not list a net price, leaving it to families to calculate that amount.
  • Another 50% understate net price by excluding important costs or counting repayable federal loans as “financial aid.”
  • Nearly a quarter of financial aid offers do not distinguish between grants, which do not require repayment, and loans, which do.

All this makes college seem more affordable than it is, with disastrous consequences for students.

For example, the U.S. Department of Education reports that about 20% of student loan borrowers are in default, going at least 270 days without a payment. More than a million loans go into default each year.

Although some borrowers emerge from default to make their loans current, some default again with 25% of those who restored their loans to good standing defaulting again within five years. The effects of this include damaged credit rating, losing access to other federal programs, employment problems, and default collection fees that increase repayment costs.

The GAO recommends that Congress consider legislation requiring colleges provide families with financial aid letters that follow the 10 best practices used in their report. The response to the GOA report by advocates and Congress was quick and supportive.

“Students and families need clear and understandable financial aid information…. The GAO report…highlights the way schools are falling short….” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

A coalition of 51 student advocacy organizations issued a letter supporting a bipartisan Senate proposal called The Understanding the True Cost of College Act.

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Rep. Virginia Foxx, the new chair of the House Committee on Education and the Workforce who requested the report, and her colleague Rep. Lisa McClain called the action of colleges “…egregious and unacceptable.”

They introduced the College Cost Transparency and Student Protection Act to establish standardized terms and definitions and formatting requirements for college financial aid letters.

Finally, Richard Cordray, chief operating officer for Federal Student Aid in the U.S. Department of Education, wrote the department’s official response: “GAO’s findings prompt serious concerns. [We] support the need for clear, standardized information for students in their college financial aid offers.”

It is now 25 years since the commission called for institutions to provide consumers with “more useful, accurate, timely, and understandable information on college costs, prices, and the different subsidies that benefit all students.”

The GAO report suggests little has changed over those 25 years.

Time will tell if Congress finally fixes the problem so families know how much money they will pay for a college education.

Manno is a senior advisor for the Walton Family Foundation education program, former U.S. assistant secretary of education for policy, and former executive director of the congressionally-created 1998 National Commission on the Cost of Higher Education.

Bruno V. Manno

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