For colleges, better financial disclosure shouldn’t be voluntary
Some things just can’t be left up to voluntary compliance.
In yet another effort to get colleges and universities to be level about the costs of higher education, the Obama administration has persuaded 10 schools to provide important financial information to incoming freshmen starting with the 2013-14 school year.
As part of their financial aid packages, the schools, which represent more than 1.4 million students, said they would disclose at least five key pieces of information: They will be clearer about how much one year of college will cost. They will provide a clear distinction between grants, scholarships and loans. They will provide estimated monthly payments for the federal student loans that graduates will likely owe. And, they will supply information about the percentages of students who enroll from one year to the next, graduate and repay their loans without defaulting.
This type of disclosure, the administration announced, is a big leap forward toward financial aid transparency. Perhaps right about now you’re thinking: Why isn’t such vital information already available for all colleges and universities?
Of course schools provide cost information, but many families complain that what they are given is confusing, making it hard to compare college costs or figure out how much money they would need to borrow.
In a White House news briefing, Education Secretary Arne Duncan said schools are doing “a poor job of making clear how much a student will receive in terms of grants and scholarships, and how much they’ll have to borrow in terms of student loans. . . . Having this important information provided both clearly and transparently will help students and their parents invest wisely and make the best, most informed decision possible about where to enroll.”
The schools that have stepped forward to be more transparent are the state university systems of Maryland, New York, Massachusetts and Texas; Arizona State University; Miami Dade College; North Carolina Agricultural and Technical State University; the University of North Carolina at Chapel Hill; Vassar College; and Syracuse University.
The Department of Education and the Consumer Financial Protection Bureau teamed up to launch the “Know Before You Owe” student loan project as a way to standardize financial aid information. With feedback from the public, the agencies are developing 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.
“We plan to have it available in the beginning of the upcoming school year of this fall, and we hope that it will be voluntarily adopted by the higher-education community,” Duncan said.
See, that’s the problem. When you say that the schools are doing a poor job of being upfront and making it difficult for families to know what they owe, then I think we are way past letting them voluntarily correct a problem that has been called to their attention for some time now. These schools are led by highly educated people and they haven’t figured out how to deliver financial aid information in a way that discloses the true cost of a college education to families?
They can figure it out. But many colleges don’t want to. If they did, families would be smacked in the face with the truth, which is that a student can’t afford to attend their schools without a decade or more of debt. This would mean that the colleges would actually have to better control their expenses. Over the years, because students can easily borrow from the federal government or private lenders, the schools have gotten very little price push-back.
The lack of transparency is the higher-education version of a car-buying nightmare, which is to say you never really know what you will owe until you’re sitting in the finance office after having fallen in love with the car.
“Figuring out how to pay for college can be daunting,” CFPB Director Richard Cordray said during the briefing. “It’s often the first major financial decision that a student will make, one that will affect her for the rest of her life.”
So stop giving colleges and universities a choice to continue their poor performance in this area. If, as Cordray said, the stakes have never been higher for families to clearly understand the costs and risks of student debt, then Congress needs to act to mandate that schools use the shopping sheet. Don’t ask. Just tell them to do it.
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