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Simplifying College Aid: A Fresh Approach to Understanding Financial Aid Packages

Colleges and universities have been criticized for years for sending out financial aid offers to students that are confusing, opaque and sometimes misleading.

Now, about 400 colleges and universities have agreed to take steps to bring “transparency, clarity and understanding” to their financial aid offers, a task force promoting the effort announced last month.

The schools that have pledged to commit to the efforts of the task force, the College Cost Transparency Initiative, to send clear and understandable aid offers to students include two- and four-year public and private colleges in 43 states. Among them are big state schools, like Arizona State University; liberal arts colleges like Pomona College in Claremont, Calif.; many community colleges; and at least one for-profit school. Leaders of 10 higher education groups, including those for college financial aid officials, college presidents and admissions counselors, make up the task force.

Researchers who have studied the issue of murky aid offers said it remained unclear whether the new effort would gain traction. While the colleges pledging transparency serve more than four million students, the schools are a fraction of the country’s roughly 3,900 degree-granting institutions.

“We’ve been down this road repeatedly,” said Rachel Fishman, director of the higher education program at New America, a research organization in Washington, D.C. In 2018, New America and uAspire, a nonprofit group that promotes college affordability, published a study that identified flaws in financial aid offers — like schools that managed to describe student loans with terms that didn’t use the word “loan.”

Still, Brendan Williams, a financial-aid expert with uAspire, said that as more colleges signed up to commit to the task force’s efforts, others could be inspired to do so as well. “I think it’s positive to see movement,” he said.

Justin Draeger, president and chief executive of the National Association of Student Financial Aid Administrators, which is managing the new initiative, said standardizing college aid letters would be challenging because paying for college involves multiple sources: students and their families, federal and state governments, colleges themselves, and independent scholarship groups.

“The way we fund financial aid in this country is complex,” he said.

Colleges need some flexibility, he said, because while many serve traditional students enrolling soon after high school, others focus on adults who may have different financial priorities.

Student aid offers — sometimes called financial aid award letters — are supposed to detail the cost of attending a college and the net cost a student can expect to pay after financial aid.

But colleges often use mystifying terms and include different costs in their total prices, making it challenging for students and families to know how much they would probably have to spend to attend a particular college and to compare offers from different schools. Some offers blur the distinction between grants and scholarships, which don’t need to be repaid, and loans that do.

The offers received renewed attention late last year in a Government Accountability Office report, which found that offers from some 91 percent of colleges either didn’t include or understated the net cost of attending — the bottom line that students need to know how much a year at a given school will cost them.

Almost a quarter of colleges, the G.A.O. found, “do not provide any information about college costs in their financial aid offers.” Offering financial aid without cost details, the report said, can “confuse students by making a college seem less expensive than it actually is.” In one anonymous example cited, a college underestimated the net price by more than $47,000.

Ms. Fishman at New America noted that the task force group’s list of partner colleges included the State University of New York system, which has 64 campuses — and is already required by state law to use a simplified, standardized form, as are all public and private universities in New York.

Other schools in New York, however, don’t appear on the list. Mr. Draeger said partner schools were those that had formally submitted their financial aid forms for review and had committed to the initiative’s minimum standards and principles. The group, he said, won’t “just automatically sign schools up for this initiative without their consent.”

That means some colleges not on the list may already be using transparent forms but haven’t chosen to submit their forms for review by the task force.

Paul Dieken, director of financial aid at Pomona, said his college had long had a commitment to being clear in financial aid offers. “I have an ethical responsibility to be upfront with students,” he said. Pomona and other well-endowed colleges have little reason to be anything but transparent, he said, because they can afford to be generous with financial aid. “It’s one of our selling points.”

Pomona’s total estimated cost of attendance for the 2023-24 school year is $85,300, but, Mr. Dieken said, the average net price for students receiving financial aid (what they pay after grants and scholarships) is currently just over $16,000. The college said 58 percent of its students get some form of financial aid.

But colleges that can’t afford to fully cover a student’s financial need without loans, Mr. Dieken said, may worry that listing the true cost may make them appear less competitive.

Ms. Fishman argued that Congress should require colleges to adopt standard, user-friendly aid offers. “What it’s going to take,” she said, “is a law.”

Colleges should detail the price of attending, including “direct” payments to the school in the form of tuition, fees, housing and meals, and “indirect” costs like books, supplies, transportation and personal expenses, according to the Education Department. This is sometimes referred to as the “sticker” price.

Then the college should deduct grants and scholarships, which don’t need to be repaid. (Schools determine eligibility for financial aid by looking at the student’s Free Application for Federal Student Aid, or FAFSA.) The difference is the net cost to the student — the amount of money that students and families can expect to pay out of pocket, from savings or income from working, or by taking out student loans.

Examples of what an aid offer should look like, including the Education Department’s recommended template, are on the College Cost Transparency Initiative’s website.

Until most colleges adopt a clearer form, the Consumer Financial Protection Bureau has a guide to help interpret aid offers.

Colleges usually provide aid offers when they issue acceptance letters to students. That may be in the fall, if students have applied under early decision programs or to a school with rolling admissions, or in the spring. One unknown this year is whether aid offers may be delayed because of the later availability of the FAFSA. In recent years, the form became available online in October for the next academic year. But this year, an overhaul of the form and its underlying aid formula has pushed it into December.

The initiative has a list on its website, which is updated as schools apply and are approved, Mr. Draeger said.

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