Form helps calculate college, student loan costs

Michelle Singletary
Columnist October 29, 2011

If I had a dollar for every college student who didn’t know what his or her student loan payments would be after graduation, I wouldn’t have to spend a single penny of the money I’ve saved to send my children to college.

I’ve long been disturbed by the number of students and families who only home in on how much they’ve borrowed for school once the payments come due. It would be like buying a house and not knowing what your monthly mortgage payment would be until after you’ve moved in.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

Soon, families might finally be able to get clear and upfront information on college costs and what their debt will be.

The Consumer Financial Protection Bureau and the Department of Education have teamed up to launch the “Know Before You Owe” student loan project. The agencies have drafted a one-page shopping sheet to help students better understand the type and amount of financial aid they qualify for, and to allow them to compare college offers.

The form is similar in concept to the federal Truth in Lending Act mortgage disclosure form, which is intended to give borrowers fundamental information about their home loans.

Part of the student loan form aims to help students determine how much it would cost each year to attend the selected college, including tuition, housing, books and transportation. The drafted form also includes information on grants, scholarships and work-study options. Most important, a box provides not only the total loan amount borrowed but also the total estimated monthly payment for federal and any private loans. This one section should serve as shock therapy for students who don’t end up getting lots of grants or scholarships.

“In these tough economic times, the stakes have never been higher for students and their families to clearly understand the costs and risks of student loans,” said Raj Date, special adviser to the secretary of the Treasury for the CFPB.

Additionally, to give families a comparison guide, the drafted form would include information on the average cost to attend public and private schools. More specifically, the form would provide graduation rates and retention ratess — as well as the percentage of students from the selected school who have defaulted on their federal loans within the first three years of repayment.

This shopping sheet is quite significant. It has the potential to force families to consider the full cost of college and maybe lead them to make choices that won’t bury them in debt for decades. But here’s the thing. The Department of Education doesn’t have the authority to mandate use of the form. And the department might not push for it as a requirement unless there is public demand. “We want to see what feedback we get from students and families before we move down that path,” said spokeswoman Sara Gast.

Congress should step in and require institutions to provide families with a standardized financial aid disclosure form. We can’t wait for the schools to voluntarily use the form because many won’t. If more students fully understood how much they would owe, it would probably dissuade colleges from allowing costs to spiral. The College Board just released its annual “Trends in College Pricing” report. State budget cuts, most noticeably in California, helped cause the average in-state tuition and fees at four-year public colleges between the 2010-11 and 2011-12 school years to rise 8.3 percent. Tuition and fees rose 4.5 percent at private, nonprofit colleges.

The financial aid shopping sheet is available to view and download at www.consumerfinance.gov. Weigh in with your suggestions if you think it could be improved. For example, Mark Kantrowitz, publisher of FinAid.org, a great Web site for college financial aid information, suggests changing the shopping sheet to include loan repayment rates instead of default rates.

I recommend including a separate breakout for total parent loans that would be needed and the monthly payments for those loans. Additionally, I’d like to see a section with an example of how student debt can soar when a borrower postpones payments by receiving an unsubsidized deferment or forbearance after leaving school.

The conventional wisdom that a college education — and the debt it costs to obtain it — is a guarantee to a good life doesn’t always hold true, especially in an economy with high unemployment and many low starting salaries.

For decades, parents and prospective college students have been told that school loans are good debt. But this awful advice has helped push many families to assume more debt than they can afford.

Please take the time to study the financial aid shopping sheet. Families need a push to know what they will owe before it’s too late.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Or e-mail: singletarym@washpost.com. Personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.

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