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U.S. Government Accountability Office report reveals faults of financial aid offer letter system

The financial aid offer process differs from college to college, and the GAO says 20% of schools don’t put cost data in the offer.

WASHINGTON, D.C., USA — U.S. lawmakers introduced the College Cost Transparency and Student Protection Act to make college cost decisions more consumer friendly. It came after the U.S. Government Accountability Office (GAO) released a report calling for Congress to require colleges to include clear, standard information in all financial aid offers.

"Colleges and universities must do better,"  said Education and Labor Committee Republican Leaders Virginia Foxx (R-NC 5th District) and Rep. Lisa McClain (R-MI 10th District). "Prospective students deserve to have all the information necessary to make informed decisions about their education. Schools should strive to provide students with accurate and transparent information about college costs instead of hiding behind opaque language and misleading practices."

The current process

The GAO report said that if colleges followed best practices, they would estimate the net price of an education at their institution by only deducting grants and scholarships for all key costs. Those key costs include things like tuition, books, housing and meals.

They said about 91 percent of colleges understate or don't include the net price in their financial aid offers at all.

Credit: U.S. Government Accountability Office

"What we found was that most colleges are not providing the information that students need to make this decision," said Melissa Emrey-Arras, the Director of Higher Education Issues at the GAO. "Over 20 percent of colleges in America have no cost data on that financial aid offer. The students may just get an offer that says this is the scholarship that you'll get. But they don't know what that means in terms of the actual cost that they're going to have to pay because there's no price data on that offer. And because of that, it's really hard for students to figure out which college to go to and whether they can afford to go to college."

Emrey-Arras said the current financial aid offer process could negatively impact borrowers down the line, and those borrowers may not understand the extent of what they agreed to when accepting an offer.

"Many families struggle with the cost of college, and they're looking to find a college that they can afford to go to. And it's hard to make that decision if colleges don't give them the information that they need," said Emrey-Arras. "They may end up needing to rely on student loans or more student loans. Or they may have a financial crisis when they're hit with unexpected costs because the college never told them upfront what the real cost would be."

Best Practices

The GAO noted 10 best practices for colleges to follow to provide clear and standard information in financial aid offers:

  1. Itemize key direct and indirect costs: Students need to budget for both direct costs (e.g., tuition and fees) and indirect costs (e.g., books, transportation and personal expenses).
  2. Provide a total cost of attendance (COA) that includes key costs: Students should know the total cost of college. This information helps them determine the relative value of grants and scholarships and other types of student aid.
  3. Estimate the net price (by subtracting only gift aid from key costs): Estimating net price in this manner provides students the most complete information about the amount they will need to pay for college.
  4. Separate gift aid, loans and work-study: Students should be able to immediately recognize the different types of aid in their offer.
  5. Do not include a parent PLUS Loan or, if included, separate and differentiate it from student loans: Parent PLUS Loans differ from student loans in several important ways, so they should not be included together.
  6. Label type of aid: Students should know the type of aid (grants, loans and work-study) being offered.
  7. Label source of aid: Students should know the source (federal, state, institutional or private) of the aid because the protections and stipulations differ.
  8. Include actionable next steps: Students should be informed of their next steps to accept, decline or adjust the aid in the offer and the college's point of contact for additional assistance.
  9. Highlight key details and distinctions about loans, grants and work-study: Students need to know key details about the aid so they can assess which aid options are best for them. For example, such details might include information about minimum academic requirements to maintain a scholarship or explaining that work-study is not guaranteed since students need to apply for these jobs on campus.
  10. Do not refer to the offer as an "award": Students should know that loans and work-study are not "awards" because they generally must be repaid or earned through employment, respectively. 

"It's very difficult right now for students and their families to compare offers from two different colleges," said Emrey-Arras. "You could have the same exact cost and aid package from two different colleges, but one of those colleges could make it look like it's free to go to and the other college could make it look like it cost $20,000 a year. And yet, in the end, the costs would be the same. But it would be so hard to know that up front because of the way they presented the information."

What can prospective college students and their families do now?

Emrey-Arras said it's important for college students and their families to look closely at the offers they receive. That can include reaching out to colleges for key cost information so you have the full picture when assessing costs.

"Then at the end of the day, the prospective student can make a decision comparing apples to apples, what is the full cost is going to be for the student to attend each college to decide which is the most affordable college for them to go to," said Emrey-Arras.

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