It’s No Wonder Students Can’t Pay Their Debts–Colleges Blur Loan Requirements


A new report by New America and uAspire concludes that financial aid award letters are often too confusing to be useful to prospective students. The report, entitled “Decoding the Cost of College: The Case for Transparent Financial Aid Award Letters” lambasted award letters for obfuscating useful information about loans. It concluded, “award letters lack consistency and transparency. As a result, it is exceedingly difficult for students and families to make a financially-informed college decision.”

The team of researchers performed a quantitative analysis of 11,000 financial aid award letters and in-depth qualitative analyses of 515 award letters from unique institutions. Their findings were discouraging. The executive summary provides these details:

  • Of the 455 colleges that offered an unsubsidized student loan, we found 136 unique terms for that loan, including 24 that did not include the word “loan.”
  • Of our 515 letters, more than one-third did not include any cost information with which to contextualize the financial aid offered.
  • Seventy percent of letters grouped all aid together and provided no definitions to indicate to students how grants and scholarships, loans, and work-study all differ.
  • Nearly 15 percent of letters included a PLUS loan as an “award,” making the financial aid package appear far more generous than it really was.
  • Of institutions that offered work-study, 70 percent provided no explanation of work-study and how it differs from other types of aid.
  • In our sample, only 40 percent calculated what students would need to pay, and those 194 institutions had 23 different ways of calculating remaining costs.
  • Only about half of letters provided information about what to do to accept or decline awards, and those that did had inconsistent policies.

Given these findings, it’s unsurprising that many students have no idea how much they’re paying (or borrowing) for college. According to a 2014 report from the Brookings Institution, about half of all students in the U.S. underestimate how much debt they have and less than a third can come within a few thousand dollars of the correct total. Of particular concern is that nearly 30 percent of student borrowers believe they have no federal debt (despite evidence that they do).

This mis- and disinformation is a recipe for nonrepayment of loans or outright default down the line. In 2017, 11.3 percent of former public university students defaulted on their loans within three years of leaving school. At private nonprofit colleges, that rate 7.4 percent. Student loan analysts predict that nearly 40 percent of borrowers may default on their student loans by 2023.

Universities are complicit in the creation of this problem. Transparent, comparable financial aid award letters would go a long way to encouraging more responsible, informed student borrowing. Universities should change their practices now.

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