Op-Ed: Five Things We've Learned About Financial Aid Offers From Consumer Testing

By Justin Draeger, NASFAA President

Communicating effectively with students is difficult in any circumstance. But in the ever-changing world of financial aid, successfully telling students how they can pay for college has never been more challenging or more important. That's why NASFAA hired a third-party research firm to work with current and prospective students and their parents, and surveyed university financial aid offices to examine the best way to convey financial aid information to students. We performed qualitative and quantitative consumer testing on the U.S. Department of Education's "College Financing Plan," which is set to replace the "Financial Aid Shopping Sheet" within the next year. 

Here are five things we learned:

1. Keep Aid Offers Focused on Costs and Financial Aid: Financial aid offers have come under scrutiny in recent years along with various suggestions, recommendations, and guidance, all with different policy objectives. For example, inherent in the Obama-era "Shopping Sheet" is the idea that students should be using financial aid award notifications to shop around and compare various schools to one another. Under this paradigm, it would make sense to add data elements about student outcomes, average indebtedness, and the odds of students paying back their loans.

However, consumer testing showed that students and parents were squarely focused on costs and the financial aid available to cover those costs. In fact, given the option, many students said they would prefer that the space currently dedicated to outcomes data would be better utilized by providing more information on the terms and conditions of student loans and details on work-study. Students had a long list of questions regarding the work-study program, that ranged from how funds are disbursed to where the money is deposited (i.e., to the school or the student), and whether the job was guaranteed or aligned with their program of study. Students had little understanding of how the program actually worked.

Among low-income focus group participants, the single most important question they wanted answered was "How much am I going to have to pay out of pocket?" above all other factors when making the decision about where to attend college.

Certainly everyone agrees that transparency and sunshine are good for consumers, but outcomes data appears to have the most impact earlier in the process. "It is useful in different scenarios, like admissions or counseling, but not here," said one student. 

2. Word-Choice Matters: Part of the confusion on aid offers comes from the variation in terminology and definitions used by students, schools, federal agencies, scholarship providers, and everyone else involved in financial aid. For example, financial aid administrators and the Department of Education define financial aid as any money used to pay for school. However, students and parents only consider "free" money that does not need to be repaid or earned through work as financial aid. This mismatch of vernacular causes significant challenges in communication.

As will surprise no one who works with students, a family's "Expected Financial Contribution" derived under federal or institutional methodology is meaningless to students. 

Students and families appreciated having the "net cost" (estimated costs less grants and scholarships) provided to them, underscoring how vital it is that all institutions are using the same definitions to derive a net cost. Coming up with standardized terms and conditions is already a part of NASFAA's Code of Conduct, but meeting students where they are will require a consensus-based approach that includes financial aid offices, students, counselors, federal colleagues and others, along with additional testing. As this and other consumer testing has made clear, what seems simple to one constituency is not so simple to another.

3. Doing the Math Simplifies a Complicated Process: A major shortcoming of the Department of Education's new financing plan was the lack of subtotal for loans. Rather than a long list of financial aid programs, students preferred having all grants and scholarships grouped together and subtotaled. The same for loans, and separately, work-study.

From a public policy perspective, this can become complicated when one considers the Parent PLUS Loan program. As a matter of policy, some schools do not package PLUS loans at all, since they are credit-based and therefore not guaranteed and because they are taken out in the parent's name, which given the terms and conditions of PLUS loans, and how easily they can be obtained, can be detrimental to parents. Other schools with a large percentage of parents who rely on PLUS loans, do package them as an option because it forestalls parental questions about how they will make up funding deficits.

The Financial Aid Shopping Sheet does not list PLUS loans as an option, but instead points parents back to the financial aid office. There are many problems with Federal PLUS loans and great debate to be had over whether parent PLUS loans in particular are helping or harming families, particularly disadvantaged families. But solving the problems with the terms, conditions, and underwriting of PLUS loans is a separate policy question from whether or how they should be disclosed to families. In terms of disclosure, if they are included in a school's financial aid award, students and parents want them subtotaled with other loans for ease of comparison.

4. Students and Parents Want a Bill, Which Cannot Be Provided: Throughout the consumer testing, it has become clear that what students and parents want most is a bill. Unfortunately, financial aid award notifications are not, and cannot be bills. Federal and state appropriations, which determine tuition costs, not to mention on-campus housing cost estimates, are generally not locked in until after most traditional schools have sent out financial aid information. According to financial aid administrators, it is important that "estimated" continues to be reinforced to students throughout the process.

That does not mean, however, that more can't be done to give students and parents a better idea of their out-of-pocket expenses. One student suggested that schools calculate and show two different costs of attendance—one with on-campus housing, and another with estimated off-campus housing costs to show both options. Other students found it distracting that schools would be providing information—whether on-campus or off-campus—that did not relate specifically to them.

Many students commented that they wanted costs divided into "billable" and "non-billable" expenses, so they could clearly see what they would owe the school. Aid offices hope that the next iteration of the financing plan will also allow some flexibility for schools to customize and separate out estimated costs even further.

5. Flexibility Matters, for Schools and Students: While our goal was not to directly compare the Department of Education's Shopping Sheet with the new "College Financing Plan" it became clear that both had strengths and weaknesses relative to one another. Overall, students said they favored the Shopping Sheet because of its simplicity. However, comprehension tests showed a mixed bag. Because the Shopping Sheet is so federally focused, students and parents were generally able to correctly answer questions regarding federal student aid amounts. But students were better able to answer questions regarding costs and net balances from the Financing Plan.

Because of the additional detail and potential for flexibility in the Financing Plan, aid offices preferred the Financing Plan over the Shopping Sheet.

Going Forward: Providing clear information about how to pay for college is a powerful tool in college access and success because it can lower the friction and stress related to the universal question asked by students and parents: "How am I going to pay for this?" 

If consumer testing points to anything, it's that the most important ingredient in conveying this vital information is empathy. Schools must continue to put themselves in the shoes of their students when trying to effectively communicate. Policymakers, lawmakers, and bureaucrats in D.C. need to put themselves in the shoes of both schools and students, and everyone must avoid the temptation to think "we know best." And in all scenarios, the best way to know what students and parents are thinking is to ask them and solicit their feedback through rigorous, qualitative and quantitative consumer testing.


Publication Date: 6/4/2019

David S | 6/5/2019 2:15:15 PM

The key here is the line, "...everyone must avoid the temptation to think "we know best." That's part of how we got to where we are now. I do some work for a non-profit scholarship program, and applicants must submit a copy of their most recent award letter. Simply put, some are good, some are not. We all know what "Fed Dir Unsub Ln" means. 99.9999% of the population does not. At a bare minimum, we must communicate in language that people who are not immersed all day in financial aid understand.

But here's where I think a big gap has existed - everybody says that award letters (I know, I'm not supposed to call them that...) are confusing. But I don't think we know what about them confuses people; perhaps NASFAA's testing will help close that gap. It's not that offer notifications don't match the bill, because they're confused with the notification before they've seen the bill. I wonder how much is financial literacy challenges that many students and parents have, and I wonder how much of it is exacerbated by the anxiety that the whole process causes to begin with.

Joel S | 6/5/2019 9:29:55 AM

David H...I agree with you. I feel like Net Cost as opposed to Net Direct cost is more confusing to our students. While the Financial Aid offer is not a bill, showing the net direct cost would more accurately reflect the bill that will come later. There are ways where you can still show the indirect costs on the aid notification, so as not to hide them, while still provide the students a Net Direct Cost, which has seemed to be more useful to our students.

David H | 6/5/2019 8:15:03 AM

For me, I am very interested in NASFAA providing guidance to members about Net Cost (full COA - gift aid) vs Net Direct Costs (Direct/Billable Costs - Gift Aid). We feel that students and parents are really most interested in Net Direct Costs, which will more closely approximate their bill, than Net Cost, which is based on a full COA that many students find to be more abstract b/c it includes estimates for indirect costs such as personal expenses, transportation, and off-campus housing.

I'm also concerned with how efforts to regulate this more could create more confusion about room and board costs. Most schools offer several housing and dining plans with different price points. If changes ever push us to use averages, we will be quoting prices that don't really match any of our housing and meal plan combinations.

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