The Government Accountability Office found that out of 500 colleges 91% did not include enough information for families to easily understand how much out-of-pocket money the student or family will need to pay for one year of college.
NPR has a great story explaining the problem and highlighting some new proposed federal legislation to make financial aid offers easier to understand. (Cliff notes version below)
Tip to families as the offers start coming in:
1. Call the college financial aid office and ask them to clearly explain what is "free" money (grants/scholarships), what are loans (student and parent plus), what are based on sweat equity (work-study) and most importantly the total net cost the family is expected to pay.
2. Make sure you understand how much of a gap there is between what the financial aid covers and what your real costs are.
Often the financial aid offer creates a financial gap between what the parents can afford and what they expect college to cost each year. Families do not have to accept any loans. Make solid decisions. There are many paths to an excellent education that do not involve overwhelming debt.
Cliff Notes:
Financial Aid and Merit offers from a college to an accepted student are not standardized. A good letter should include the total Cost of Attendance ("COA") which includes: tuition, room & board, books, college fees, transportation, supplies, and medical insurance. This should be clearly stated in the offer. The COA is the entire cost of attending 1 year of college. Unfortunately not all colleges clearly list the costs they expect students to pay.
To calculate the net cost of a college (the actual cost to a student and family), take the COA and subtract grants and scholarships. Grants and scholarships are so-called free money. They are actually a discount on tuition being offered to the student. This money does not need to be repaid.
Do not count work study, student and parent plus loans as "free money" to calculate the total amount the family is expected to pay.
The Government Accountability Office ("GAO") researched financial aid offers from 500 colleges across the country, it found that in the vast majority of cases -- 91% -- colleges did not include an adequate net price. This leaves the student and family with no clear information about the "out-of-pocket" money they will need to pay to attend. Over 50% did not itemize costs and 22% just listed aid, not costs (tuition, room and board, books, supplies, colleges fees, transportation, health fees). Many offers include student and parent loans they suggest the family take out to cover one year of college. This must be multiplied by 4 or increasingly 5 years for families to understand future costs. I've seen financial offers that have cheerfully included suggesting a $50,000 parent plus loan to the family. The way the letter is laid out a family could easily think all of their costs are covered, without realizing they are expected to take out loans.
Work study is often included and generally is between $1,500 - $3,000. Work study is not "free" money. It assumes that the student will find an on-campus job and work long enough to earn that amount during the year. For most students, their work study funds are used to cover everyday expenses and occasional splurges like dinner in town instead of the dining hall. Families cannot count on this money, it depends on the student's ability to get a job and be able to handle work and school at the same time. Granted most work-study jobs are working at the library, helping in admissions, working in the dining hall and other jobs which will accommodate a students schedule.
Next to housing, paying for college is one of the largest expenses a family will pay. So why is it so hard to get clear information? Mortgages and credit cards require legal disclosures and standardized information, so why can't college pull the curtain back?
A couple of congresswomen (Foxx and McClain) have introduced new legislation that would make financial aid offers transparent and easy to compare. It's called the College Cost Transparency and Student Protection Act. Other congress people have tried to pass similar requirements, without any luck.
Many colleges send offers that read like a sales brochure. Don't be distracted by the wonderful scholarship your student earned, make sure you understand the full financial picture.
For more information:
Check out my blog posts Understanding Financial Aid , Scholarships Part 1 , Scholarships Part 2 Please contact me with questions. I am not a financial expert and I can recommend certified financial college advisors