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The Baltimore Sun
Eileen Ambrose

Financial aid award letters often lack transparency and wind up confusing students and parents

Colleges adopting a standardized award letter would help

When you buy a house, you know the price and your monthly payment. The same with a car.

But when it comes to a college education, students often don't have a clear idea of what they'll end up paying or whether one school is offering a better aid package than another.

That's because there is no uniformity to financial aid award letters. Colleges use different terms and formats, making comparisons difficult. Schools don't always make a distinction between grants and loans or calculate the cost of college the same way. And letters often contain acronyms with no explanation.

Rich Williams, a higher education advocate with U.S. Public Interest Research Group, has reviewed award letters and recalls one that simply listed "$1,000 PHEAA." He says it wasn't clear whether that was a grant, a loan — or a foreign car.

It's no wonder 18-year-olds can end up making financial aid choices that come back to bite them years later.

When I have interviewed graduates struggling with steep education debt, they often say they didn't even know they had taken out high-cost private loans. They usually found out later when told they are ineligible for consumer-friendly repayment plans that are available only with federal loans.

With student loan debt exceeding $1 trillion and families increasingly questioning whether a college education is worth it, colleges should be embracing making financial aid award letters clear and uniform. Transparency may not solve the student debt problem, but it can help students and parents make better-informed decisions.

And it's what families — colleges' customers — want. Seven out of eight students and parents polled favor uniform award letters that are easy to understand and compare, according to a 2010 survey by, an online provider of aid information.

The Obama administration and members of Congress want it, too.

The Consumer Financial Protection Bureau and the Department of Education have been developing a one-page financial aid award letter that schools could use voluntarily.

The bureau posted a sample letter online last year and has been collecting public input. The letter breaks out the cost of attendance and clearly spells out grants and loans. It also discloses the graduation and loan default rates at the school plus a student's estimated monthly loan payments after graduation.

So far, more than 1,000 comments have come in. That feedback will be used by the Education Department to create a final version expected to be released in the fall.

The Obama administration already is lining up support. Earlier this month, the White House announced that 10 colleges and state systems — including the University System of Maryland — have backed the idea of providing key information about aid and college costs in an easy-to-understand format by next year.

"There is a lot of work to get the details right, but the concept is really an excellent one," says Maryland University system Chancellor William E. Kirwan. "It's one of those ideas you hear and you wonder, 'Why didn't you do this before?'"

It's unclear whether other colleges will follow, but eventually they may not have a choice.

Earlier this year, President Barack Obama signed an executive order that will require about 2,000 colleges participating in the Defense Department's tuition assistance program to use the CFPB's model letter when making aid awards to service members.

And last month, Minnesota Sen. Al Franken introduced a bill that would require colleges to issue uniform award letters and use the same terminology. Maryland Sens. Ben Cardin and Barbara Mikulski are co-sponsors.

Of course, some schools do a good job on award letters. "They are the exception to the rule," says Mark Kantrowitz, publisher of He says he has reviewed hundreds of award letters over the years.

The most troubling letters blur the distinction between loans and grants. Some letters don't even use the word "loan," or designate a loan with the initial "L," Kantrowitz says.

That could lead students and parents to believe they are getting free money when they actually are taking on debt.

Many schools don't include the price of college in their award letters.

Others report the "net cost," which is the total cost of attendance minus the financial aid package, Kantrowitz says. But this can mislead families into thinking the college is less expensive than it actually is because the aid package can be loaded with loans.

A better figure, which some schools quote, is "net price," Kantrowitz says. That's the total cost of attendance minus grants and scholarships that don't have to be repaid. What's left is the out-of-pocket cost — loans and all — that students and parents will have to pay.

Kantrowitz says schools are accustomed to financial aid terms and so don't see jargon-laden award letters as a problem.

"Sometimes what's in the student's best interest is not perfectly aligned with the college's financial interest," Kantrowitz adds. "Colleges want more students."

Schools are concerned about finding enough aid so the student can attend college, he says, not whether the student is taking on too much debt.

Justin Draeger, president of the National Association of Financial Aid Administrators, says his group supports standard terminology and having key elements in all award letters. But it doesn't want a cookie-cutter format that all must use.

"Our concern is that students are as diverse as their institutions," Draeger says. "Schools need some latitude to deliver the information that will make the most amount of sense to their students."

But without a standard format, it would be difficult for students and families to make side-by-side comparisons of aid packages from different schools.

"It seems like they want flexibility," says PIRG's Williams of colleges. "The problem is that there is too much flexibility."

What is needed is more clarity.

Samantha Durdock, a junior at the University of Maryland, College Park, says that in her freshman year she needed her dad's help to understand her aid package. She wasn't sure, for example, what a "subsidized" loan meant.

She also was surprised when a scholarship she received late in the school year caused the university to take back some of her financial aid. "I was blown away they could do that," she says. "You have to read the fine print."

Durdock says her university overall does a good job of breaking down the types of aid she receives. But she adds there is room for improvement, especially to help students who are the first in their family to go to college and whose parents have no experience with financial aid.

Indeed, for students across the country, standardized award letters would be a good start.

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