How Much Disclosure?

When colleges sent financial aid award letters this year, telling students (or parents) how much they will actually have to pay to enroll, they were accompanied by a flurry of complaints: that the letters are too confusing, too difficult to compare, and can mislead students as to how affordable college really is.

As concern grows about student debt, calls are intensifying for colleges to standardize the letters. But just how much standardization is desirable or necessary remains up for debate. Financial aid administrators and colleges generally agree that letters should use the same terms and make similar disclosures -- distinguishing between grants and “self-help aid,” including work-study or student loans. Others want to see a federal requirement for standardizing award letters that makes comparing institutions as easy as possible.

Those arguing for standardized letters say that financial aid award letters are too confusing and difficult to compare. By including loans (federal Stafford loans as well as, in some cases, Parent PLUS loans or recommendations to consider private loans) with grants and institutional aid, the letters can lead students to think their share of the costs is lower than it really is. Some colleges will tell families their expected contribution is very low -- after calculations that factor both student and parent loans into account. The letters often don't include information about loan terms and interest rates, which can add to the impression that loans lower college costs rather than deferring them to be repaid later.

Even the White House has taken on the standard award letter. At a press briefing Tuesday announcing that 10 colleges, universities and state higher education systems have signed onto providing a version the Consumer Financial Protection Bureau's "financial aid shopping sheet" to standardize how colleges present pricing and financial aid options, Education Secretary Arne Duncan framed the one-page summaries as a contrast with award letters, which Duncan said often look different, contain different information and are "difficult to figure out."

But the consumer bureau's effort is voluntary. While the early adopters include some big names -- the State University of New York system and the University of North Carolina at Chapel Hill among them -- it's hard to tell how many colleges will follow.

A provision on standardizing award letters was included in the most recent renewal of the Higher Education Act, and the issue was debated widely in the months before that renewal, in 2008. The legislation called for the Education Department to create a model award letter but stopped short of requiring colleges to adhere to the model. Two more recent proposals -- one from the National Association of Student Financial Aid Administrators, and another from U.S. Senator Al Franken, Democrat of Minnesota -- exemplify the two approaches to standardizing financial aid award letters.

The association’s proposal, put forward last week, calls for all award letters to provide certain information, including the estimated cost of attendance (including room and board, tuition, fees and living expenses), total loans available, and the net cost a student would pay after grants and scholarships are taken into account. It also calls for colleges to separate “direct costs” -- tuition and fees and, in some cases, room and board -- from “indirect costs,” like textbooks and travel and living expenses.

The goal is to make sure all colleges are using the same terminology, while providing enough leeway to adjust the letters themselves for specific circumstances, said Justin Draeger, the association’s president.

On May 23, Franken introduced a bill to require a universal financial aid award letter to be used by all colleges. Proponents of the measure, including the financial aid expert Mark Kantrowitz, compare the letter to the window sticker on a car for sale or the “Schumer box,” the at-a-glance summary of credit card costs required to be included with all credit offers.

The two proposals -- and the question of whether standardization is necessary -- led to a vigorous debate among financial aid administrators, college counselors and others on Finaid-L, a financial aid listserv. Some aid officers argued that standardization might punish a few "bad actors" who purposefully mislead students, but isn't necessary for the majority of colleges.  "If there are deceptive award letters out there, let the [Education Department] deal with those schools directly and stop trying to continually implement 'one-size-fits-all' legislation that adds undue burden on financial aid offices and doesn't make it clearer for the students," one financial aid administrator wrote.

Others countered that it isn't a question of "bad actors" -- that the letters are overwhelmingly confusing, even if they're not fraudulent. Even if loans are clearly labeled, factoring them in before telling families what they are expected to contribute can be misleading, they said.

“The aid is fairly standard, but it is not always displayed in the same way from letter to letter, which I think can be very confusing for all kinds of intelligent people,” said Catherine Ganung, a college counselor at the Taft School, a private high school in Connecticut, who previously worked as a financial aid director at Bates College and Hawaii Pacific University. Her students’ families are often financially savvy -- many parents even work in banking -- yet are flummoxed by financial aid award letters, she said.

In one case, she said, a student had letters from two private nonprofit colleges offering substantially different financial aid packages -- and ended up thinking the one requiring more loans was a better choice than the alternative with lower out-of-pocket costs. “He was so swayed by the persuasiveness,” Ganung said. “It really seemed like, ‘Good news! We were able to meet your needs.’ ”

In other cases, colleges will include PLUS loans, which parents must qualify for, as guaranteed aid, or assume that students will earn their maximum allowed benefit from a work-study job, she said.

Opponents of standardization argue that Ganung’s students -- first-time, full-time college freshmen who are using the letters to shop around for the best college choice -- aren’t the only group receiving award letters, and that standardizing to serve them overlooks the needs of students already enrolled in college, commuters and nontraditional students.

For those students, a standardized award letter could be just as confusing as the current, nonstandardized version. The parallel to consumer disclosures for other purchases doesn’t add up, these colleges argue.

“Cars are basically all cars,” said Tracy Reisinger, director of financial aid at Marylhurst University, a Roman Catholic college in Oregon serving mostly adult students. For colleges, “there are different types of degrees, different types of delivery, different types of programs that you just can’t standardize,” she said.

First-time, full-time students -- the most likely to be comparing award letters -- made up seven of Marylhurst’s 2,000 students this year. “Most of my students are not comparing financial aid award letters with other schools,” Reisinger said. “If they are, they’re comparing with a community college. “

Including room and board, as most standardization proposals would require, would confuse her students, Reisinger said. It might also lead to overborrowing, because the school’s “total cost of attendance” would appear higher than it actually is, Draeger said. A standardized award letter would also leave colleges less room to innovate, including by offering electronic award letters that include calculators for students' costs, as some institutions already do, he said.

Draeger said he expects colleges to begin following NASFAA’s recommendations in award letters for the 2013-14 academic year. Whether Franken’s bill will gain traction before then remains to be seen: five other Democrats, and one Republican, Senator Charles Grassley of Iowa, have signed on so far as co-sponsors.

But Draeger said the two sides don’t disagree that more standardization is necessary -- just how it should be accomplished. And he said his group could support federal requirements that mirror its own recommendations on sharing common terms and disclosures, as long as it did not require a standardized letter for all colleges to use.

“We’re not all that far apart on what we want,” he said.