Financial aid

New report asks policy makers to impose tighter standards on Parent PLUS Loans

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New report says Education Department did not go far enough in controversial changes it made several years ago to eligibility requirements for Parent PLUS Loans. 

Federal aid for needy students is inadequate (essay)

A recent New York Times op-ed blames the rules and regulations of the federal Pell Grant program for many of our nation’s higher education access and completion problems. In short, the authors contend that the rule that defines a full-time course load as 12 or more credits per term hinders students from graduating early or even on time.

The emphasis on that relatively small technical issue distracts from a much more important point: the Pell Grant – which currently maxes out at $5,645 for the academic year – is not nearly enough to cover college costs for any of its recipients. That is the key issue legislators must grapple with when thinking about how to raise graduation rates.

While public investment in the Pell Grant has expanded over time, its purchasing power has dropped dramatically. Forty years ago, a needy student could use the Pell Grant to cover more than 75 percent of the costs of attending a public four-year college or university. Today, it covers barely 30 percent. There is little other grant award or work-study funding available to students at public institutions, so even students borrowing the maximum available subsidized loans are left with unmet financial need and thus must work as well. 

This is a sharp change from the past, when students could optimize their focus on school by borrowing instead of working.  Now, the vast majority of students must work long hours and borrow heavily in order to make ends meet. On top of that, students from working poor families also tend to carry elder and child care obligations, are more likely to have expensive struggles with their health, and often need to contribute their parents’ household expenses even while finding resources for their books and supplies. These “opportunity costs” of attending college greatly exceed the meager financial aid we provide.

The headlines focus on elite colleges with no-loans policies. But the latest federal data show that at public colleges and universities, where most Americans attend college, students from families in the bottom 25 percent of the family income distribution -- earning an average of just $15,870 a year -- must pay almost $12,000 a year for college. 

That’s right: after taking all grant aid into account, those families are expected to live on about $4,000 a year if they want their child to get a bachelor’s degree. In that situation, borrowing is hardly optional (but quite risky for families with such little financial slack) but with current loan limits it is also insufficient. Making ends meet on financial aid alone -- even for America's poorest -- is thus far more difficult than public perception currently holds.

Of course, community colleges are available to these families as well. In a recent U.S. Senate testimony, the researcher Judith Scott-Clayton stated that more students ought to recognize just how affordable these colleges really are. To do this, she pointed out that the Pell Grant often covers tuition and fees, and that its recipients get money back to live on.

That’s true, but even with those dollars in hand those same low-income families must come up with an additional $7,000 a year for their child to attend those lower-priced alternatives. Leaving the rest of the family to live on $8,000 a year isn’t often possible.

The hard truth is that college is the least affordable for America’s working poor families. If you are lucky enough to have earnings in the top 50 percent of family income (making more than around $85,000), your child can get a bachelor’s degree at an expense of about 20 percent of your annual income. 

But if you reside in or below the middle class, securing access to the bachelor’s degree at a public institution for your children demands one-third to three-fourths of your annual income (even a community college education eats 21 to 46 percent of annual income).  

Increasing the college completion rates of financial aid recipients requires actually making college affordable. We should start by restoring the value of the Pell Grant by bringing states and institutions to the table and driving down college costs. 

We must provide incentives for states to move toward providing two years of community or technical college at no cost to families. Let’s dramatically expand the federal work-study program, especially at community colleges. Ensure that every Pell Grant recipient has access to a minimum of 20 hours per week of on-campus employment.

Require colleges to provide all students with supportive staff to can help them construct realistic schedules and financial plans, and ensure that they are screened for eligibility for all forms of financial aid and public benefits each year to support their college attendance.   

Finally, adjust the calculation of need so that it is possible for the expected family contribution to drop below $0 for the most severely poor students; this will allow them to accept as much financial aid (and subsidized loans) as they need to ensure their college costs are covered.

The American dream holds that individual merit rather than family background determines educational opportunities. Unfortunately, spending money on federal financial aid has given us a false sense of satisfaction that we are all living that dream.

We have not done enough to ensure all students have more than a foot in the door of higher education. Opening their pathways to degrees requires more than platitudes -- it requires accountability for states and institutions and also serious money. 

Sara Goldrick-Rab is an associate professor of education policy studies & sociology at the University of Wisconsin at Madison.

Average student debt for borrowers in 2012 climbed over $29,000

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A report released Wednesday shows another student debt figure is continuing to rise: 2012 college graduates who took out loans borrowed an average of $29,400 of debt to pay for their education. 

Federal regulators finalize rule to provide more oversight of student loan servicers

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The Consumer Financial Protection Bureau has finalized its authority to more closely monitor student loan servicing companies to make sure they're following the law and not misleading consumers. 

Consumer bureau issues initial findings on college debit card deals

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Arrangements between colleges and financial institutions that provide services to students may mirror problems with private student loans and predatory credit card marketing on campuses, U.S. consumer agency says. 

Let's talk to families about paying for college in language they understand (essay)

Parents: We can’t possibly afford $60,000 per year for our daughter to go to Medallion University.

College representative: But Medallion University provides financial aid based upon your family’s financial need.

Parents:  Oh, that is interesting. Someone told me that Medallion University was need-blind, so I just figured you didn’t care if we couldn’t pay that much.

College representative: If your daughter is admitted to Medallion University, we will calculate your expected family contribution.

Parents: Well, we contribute to our church but we have never made a contribution to Medallion University, but someone told me this is expected in order to get in.

Should we laugh or cry about this exchange?  While the conversation is written in English, the parents and college recruiter are not speaking the same language.  The college representative is speaking the “Language of Financial Aid” while the parents are speaking a language about paying for college. 

I call the former “Financial Aid Speak” and the latter “Payment Language.” To explain college pricing to the American public, higher education administrators must translate their rhetoric to Payment Language so families can make informed decisions about whether they can afford the price.

Actually, college administrators speak several languages in addition to Financial Aid Speak. Vice presidents for finance, for example, speak “Cost Language.” They engage in discussions about balance sheets and expenditures for producing a college education

Like Académie française for French, Cost Language has regulating boards that dictate the standards for word usage.  The Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) regulate the meaning of words, phrases and concepts for finance administrators from the public and private sector, respectively.  But administrators correctly hold no expectation that the public would know or even care about the wording of, say, FASB Rules 516 or 517 as a generally accepted accounting principle.

To balance a budget these same vice presidents for finance also estimate the income side of the ledger. Here the language follows not only GASB and FASB rules, but also the more public vernacular of “Tuition, Fees, Room, Board, Transportation, Books, and Other Expenses.” Vice presidents for enrollment management may use additional phrases like the “Cost of Attendance” or a “Comprehensive Fee” to explain the full price of going to college at an institution. They are using Price Language to explain the price of college.

“Ay, there’s the rub,” as the Bard reminds us. Price Language and Cost Language do not explain how much most families, and certainly not low-income families, will actually pay for college. Families must also understand Financial Aid Speak or be left with the impression that everyone pays $60,000 per year. Perhaps many families narrow their choices of where to apply because they are not multilingual, or maybe they speak Price Language and don’t understand Financial Aid Speak.

And why should they? Financial Aid Speak evolved from internal administrative activities at Medallion University -- procedures that now exceed half a century in age. “Expected Family Contribution,” for example, became the shorthand jargon of financial aid officers to explain how much a family would pay after the financial aid distribution to a student. 

An “award,” (not to be confused some kind of “prize") has different components, i.e., the “package” is made up of “gift aid” and “self-help.”  Ironically, these birthday sounding words reduce the family’s financial obligation, not only by the amount of money available to the family but also according to the admissions priorities of Medallion.  

“Scholarships,” or “grants” – the so-called “gift aid” -- reduces the “net price” for a family, while a job or a loan – the so-called “self-help” -- requires labor and repayment.  Who is “giving” this gift that requires payment of an unaffordable bill?  And is the “help” really for the “self” or a down payment on the school’s operating budget? This language so familiar to the financial aid officers ignores the verbiage that an untrained family uses to consider college affordability.

Add the various proper nouns and one begins to think that Financial Aid Speak is a history exam. Pell, Stafford, Perkins, SEOG, Plus at the federal level, or Lindsay, Herter, Adams, Tsongas at the state level where I live in Massachusetts, are generous programs; but families often must find and recognize eligibility, and complete lengthy forms for these named programs, to receive the intended financial help.

“Net Price,” is the central concept for knowing how much a family pays for a college education. A consumer buying a car or a television or a computer would recognize the concept as the listed price minus any store discounts and rebates.  The “Net Price” for a year of college is the price of attendance minus grants and scholarships from any and all sources. 

Savings (past resources), wages (present resources), and loans (future resources) – both of student and parents -- describe the assets that a family will use to pay for all of these academic goods and services over time. This is the vocabulary of Payment Language; it is simple, direct, understandable and essential for general understanding of college prices. The public speaks Payment Language every day.

Recent research has shown that over half of the high-achieving students from low-income families never consider selective public and private colleges even though the price of attendance could actually be lower than the college they select. 

Entitled “Boston’s Faces of Excellence,” the Boston Globe published the photographs and future plans for the valedictorian from each of the city’s 44 public high schools. The student destinations included selective private universities (Harvard, Boston University, Boston College, Northeastern), flagship state universities (the University of Massachusetts, the University of New Hampshire), state public colleges and universities (Westfield State and Bridgewater State), local colleges (Simmons, Mount Ida), community colleges (Bunker Hill), and undecided. 

How many of these students made their choice of college knowing the financial options that were available from all sectors of higher education? Their preferred college could have depended on the best fit for each student, but one suspects that at least some of these students had a conversation that sounded like the one at the beginning of this essay. And for the valedictorians whose surnames are Lopez and Garcia, and who were born outside of the United States, one wonders how Financial Aid Speak translates into the parents’ native tongue.

Financial Aid Speak is a precise language; the verbiage describes what enrollment managers do when they decide about price discounts and eligibility for jobs and loans. Becoming articulate requires years of experience and training. When spoken well, it allows financial aid officers to compare pricing among a large number of college applicants from a variety of financial and academic backgrounds. It also produces an illusion of fairness by using standardized criteria applied equally and professionally to all applicants.

Financial Aid Speak, Cost Language, and Price Language, however, do not use words and phrases that provide adequate explanation to those that need pricing information the most – middle and high school students with low-income parents. Many education experiments indicate that simple, straightforward explanation about college pricing increases the college-going rate and available college options to low income families. Meaningful communication is a necessary condition for informed choice.

Payment Language uses words and concepts directed toward that objective. It can enlighten those who may have limited their college choice because they did not understand the available information about paying for college. Colleges must use words with universal meaning for financial transactions that explain the choices about what college to attend and how to pay the bill. We should adopt Payment Language, and follow these principles::

  1. Payment Language adopts only words that are used in common financial transactions that are familiar to the public.
  2. Payment Language produces comparable concepts about college pricing in all institutions from any sector of higher education, for all types of financial aid programs, and for all amounts of discounting and payment.
  3. Payment Language uses “net price” – the amount of money that the family pays for one year of college -- calculated as the price of attendance minus grants and scholarships from all sources.
  4. Payment Language separates financial obligation among the institution, student and parents.
  5. Payment Language identifies the federal, state, institutional, and other programs and their associated eligibility requirements as a source of funding.
  6. Payment Language identifies the expected timing for payment into past (savings), present (wages), and future (loan) financial obligations.
  7. Payment Language includes the responsibilities for education loan repayment, including the interest rate, effect of compound interest, the total interest, monthly repayment, the possibilities for reduction and forgiveness as well as the incidence and consequences of default and bankruptcy.
  8. Payment Language is as easily understood in Spanish as English and can be translated directly to other foreign languages.

These principles require testing.  Conjecture about how people talk, the words they use, and what they understand is not enough to evaluate the benefits and the costs of a college education. Years of good intentions notwithstanding, our communications with the public about paying for college are confusing and often misunderstood outside of the academy.

C. Anthony Broh is the founder and principal of Broh Consulting Services and co-author of Paying for College. He has been constructing a universal “Language of Financial Aid” with financial aid officers for more than a decade.

Salle Mae survey finds families unwilling to pay more for higher education

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The annual amount families spent on college leveled off at about $21,000 after several years of decline, according to Sallie Mae survey, which finds families -- particularly high-income ones -- taking steps to limit their expenditures.

Senators reach long-term deal on student loan interest rates

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A bipartisan group agreed late Wednesday on a change to federal student loan programs, basing interest rates on the market but including a cap.

Benefits access program aids community college students

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A program is helping low-income students at seven community colleges discover new avenues of financial support, in hopes of increasing college completion.

CFPB report looks for solutions on private student loan debt

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Federal regulatory agency releases an overview of ways to help private student loan borrowers, but doesn't make specific suggestions on Congressional action.


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