"Direct and indirect costs, subsidized and unsubsidized loans, net cost and remaining cost--what do these terms mean? Students and families are left to navigate jargon such as these on their financial aid award letters, which colleges and universities use to notify students about the total cost of the academic year, how much grant or scholarship aid they will receive, how much in loans they are eligible to borrow, and what remains for them to pay out of pocket. But the truth is: not all letters communicate the information effectively and correctly," according to New America. 

"An analysis of award letters from over 500 institutions released by New America and uAspire last summer found that more than one-third of letters omitted cost information entirely. Many letters from different institutions used different names to refer to the same types of loans and grant aid, making comparison of award letters almost impossible. And many didn’t even make a clear distinction between what was free money--grants--and what were loans that would have to be repaid.

Given the pressing need to make higher education financing information more transparent and accessible to students and parents, colleges and universities need to do more to improve their award letters. To guide them on the issue, the National Association of Student Financial Aid Administrators (NASFAA), the membership organization of financial aid administrators, recently released a set of example award letters that follow its code of conduct on financial aid award letters. But even though the examples do a fine job of disclosing cost of attendance, using standardized grant and loan terminologies, and breaking down the listings of grant and loan aid, they still misrepresent some critical information.

... The structure of the example letters mirrors most of the recommendations that New America and uAspire made in our analysis of award letters, which include using standard terminologies, separating grant aid from loans, and disclosing full cost of attendance, net price, and remaining cost to students.

But the example letters also fall short in some ways. The practice of listing Parent PLUS loans alongside other federal student loans can be misleading. Parent PLUS loans, unlike federal student loans, are loans made to parents, who have to apply for them directly, pass an adverse credit history check, and are solely responsible to pay them back. Parent PLUS loans also carry higher interest rates and origination fees compared with undergraduate student loans. Listing Parent PLUS loans in line with student loans can mislead students and parents to think that both loans--and the risk of taking them--are essentially the same. Since parents can borrow as much as the full cost of attendance in PLUS loans, factoring parent loans into the student’s loan eligibility and remaining cost as in the NASFAA example letters makes the education seem much more affordable than it really is. In this case, the student’s remaining cost is listed as zero--but that’s after nearly $40,000 of intergenerational loans in a single year. Unfortunately this practice of listing PLUS loans is in fact relatively common in real-world award letters. In our research, we found that 15 percent (out of more than 500 unique letters) listed Parent PLUS loans as a line item together with other aid. Continuing this practice in the example letters, NASFAA may send a wrong signal to colleges that it’s okay to do so."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.

Publication Date: 10/2/2018