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Posted at 04:00 AM ET, 06/15/2012

How to improve college student aid disclosure

This was written by Robert Massa, vice president for communications at Lafayette College in Easton, PA. The views expressed in this article are those of the author and not necessarily those of the college.

By Robert Massa

Ten college and university presidents met with Vice President Biden at the White House recently to announce their voluntary endorsement of a uniform financial aid award letter that would provide students with clearer, more transparent and accurate information about how much they will have to pay — now, and in the future — for their college education.

The initiative is an effort to discourage students from financially over-extending themselves, and beginning in the 2013-14 school year students applying to any of these institutions will be given a one-page cost or “shopping sheet” prepared by the Consumer Financial Protection Bureau. The sheet will include the full price of a year at college, including an estimate for books and personal expenses. This is nothing revolutionary as far as I’m concerned, as I’ve always worked for colleges that disclosed this information.

But what will be of value is the part that breaks out grants from loans and work-study income, and shows students the long-term implications of borrowing by estimating monthly payments after graduation.

This initiative has received a lot of press recently. While its intentions toward financial transparency are good, it is, to quote Neil Armstrong, only “one small step.” But it is a step in the right direction.

However, what’s missing from the standardized form is how much the college has determined a family should pay toward annual costs after analyzing their financial aid application (FAFSA or PROFILE). Therefore, the first item on the form might read:

“Based on the information provided on your application for financial aid, your family contribution for the coming year is $X. This leaves a remaining need of $X, based on the cost of attendance listed below. This letter will outline your options in meeting the remaining need.”

Here’s what else needs to be changed:

1. The form calculates how much a family will pay for one year by subtracting the total grant and scholarship amount from the full cost (including books and personal expense estimates) of attending the institution. This is not quite accurate as loans reduce the amount owed out-of pocket for that year. A better descriptor might be “Price after Grants and Scholarships.”

2. The form lists loans and work-study options. To lessen confusion, it would be more accurate to include ONLY subsidized loans that would be part of a need-based financial aid package. Unsubsidized student loans and parent loans should be listed as “optional.”

3. The “how much you owe after graduation” section should first provide an estimate of the monthly payments a student would make if the full amount of a subsidized student loan is borrowed in each of the four years. Rather than lumping together all loans, federal unsubsidized and private loans should be listed separately as they are discretionary and not used to meet need (unless gaps are built into the financial package). Estimates should be made for those payments, separate from the need-based loans, acknowledging that it is often a family choice to borrow to fund all or part of the expected family contribution.

Finally, although the above suggestions would give families a clearer understanding of their total financial obligation, they are simply tweaks of a disclosure statement that is fundamentally a good one.

If we really want to address the issue of student debt, however, we need to start with addressing the always-increasing price tag of a four-year degree. This will require a “giant leap” that can occur only when colleges take control of their own rising costs. Some costs, such as heath care and energy, are out of colleges’ control. But others, such as what programs and services to discontinue before adding new ones, must be tackled. Campus politics often work against this, but consumer pocketbooks will force the issue.

For many, it will be a “giant leap” of faith into a brave new world.

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