College Financial Aid Letters Deceive Prospective Students

Students walk near Royce Hall on the campus of UCLA on April 23, 2012 in Los Angeles, California.

As millions of high school students across the country weigh their college acceptances, deceptive financial aid letters are making the process all the more complicated.

Some schools are overstating how much money prospective students will actually be held accountable for by including student loans in their accounting of financial aid, Bloomberg News reports. For example, Drexel University sent one accepted student a letter with "offered financial aid" that consisted mostly of student loans including a large amount that was expected to be borrowed from private lenders.

Student loans are quite different from financial aid. Whereas grants and scholarships are given to students to subsidize the cost of college, loans are required to be paid back with interest.

The Education Department is attempting to make this process clearer and aims to release a model financial aid letter by September, but only Congress can mandate that colleges follow suit, according to Justin Hamilton, an Education Department spokesman interviewed by Bloomberg. Hamilton told Bloomberg that he hopes colleges will view it as in their own best interest to write their financial aid letters in a "common form."

Total outstanding student debt in the U.S. now exceeds $1 trillion, and the Consumer Financial Protection Bureau has dubbed student loan debt "too big to fail." The average student loan borrower owes $12,800 in student loans, according to the Federal Reserve Bank of New York.

The Consumer Financial Protection Bureau launched the College Cost Comparison Tool earlier this month in order to make it easier for families to compare college costs.

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Comments

[JenniferSimmons]

04:26 AM on 06/07/2012

One of the major concerns many parents have is how to pay for college. Some put it off until their children are visiting schools, while others start the moment their child is born. While it’s always best to save early, college savings is one place where being smart about where you save, and how much, can be crucial.

Here's more: http://parentesource.com/2012/06/01/one-way-to-save-for-college/

[HMeldrum]

12:54 PM on 05/01/2012

I think a lot of the folks responding to the article missed the point. Most people understand that they will have to borrow funds to pay for a college education. The point of the article is that, for years, colleges have been including Parent and Alternative loans on the financial aid award letters and that leads people to believe that the college is meeting 100% of their financial need. The only loans that should be included on an award letter are the Federal Direct Student Loan (formerly Stafford) and the Perkins loan. These are loans in the student's name only and do not require credit checks or co-signors. As a financial planner, specializing in college planning, this has been a pet peeve of mine for several years. For a student or parent, not familiar with how to read a college's award letter, it can be very misleading. I hope the Department of Education, and Congress, establishes and mandates a model award letter.

[Life With HC]

10:05 PM on 04/28/2012

Let's get to the really important stuff. Which are the good party dorms and how soon do I have to schedule an AIDS test or assistance with getting an abortion with the campus dispensary?

[Life With HC]

09:56 PM on 04/28/2012

Dear God - imagine the nerve of colleges expecting someone getting ready to go to college to read and understand a complicated letter. They have their gaul.

[MamaShoob]

10:43 AM on 04/26/2012

I'm an adult who just returned to college last year. I listen to all the young kids that just came out of college talk about all their loan debt, yet almost everyone of them stated that their student loans helped them "buy my car," "pay for my apartment and furniture" etc. Student loans are supposed to be for education. As some other readers said if they don'tunderstand the difference between loan and financial aid they need to really do some research and be smart about their money. Take into consideration a college that is within driving distance and stay home until you have a job that can help pay for your car/apartment.

[lcr999]

01:29 AM on 04/26/2012

Loans ARE a form of financial aid.

If you are going to college and can't understand the difference between a grant and a loan, you should rethink whether college is appropriate or not.

[duskborne]

09:45 PM on 04/25/2012

How do college freshman not understand the concept of "loan"...that means you have to pay it back...how is that confusing.

You are even required to go through loan entrance counseling online in order to obtain a Federal Stafford loan, which is need and not need based. You even have to sign an agreement that says that you understand that you have to pay the loan back.

I guess in the world of EULA's, no one read anything anymore. Just check agree.

[s trembley]

02:34 PM on 04/25/2012

I only had a few letters to compare with my daughter since she was selective about where she applied - applications and test scores cost $ to send.

All included loans and work-study, but the other listings varied greatly.

It was not apples to apples, and I had to make up a spreadsheet to categorize what the price was and what the other aid equalled. Once I toted up room, board, fees (if they could be found in advance), I subtracted the merit and need scholarships and grants. I also had an extra line to illustrate what is lost if she does not maintain a 3.0 GPA.

Then I applied the work-study money because my daughter would rather work now instead of taking a loan.

That last amount is pay now or pay later through loans. There's a max amount for fed loans guaranteed and at the best interest rate, so just a little more could be a lot of $ in the future.

Also, I noticed one school was particularly tricky with their aid offer. Parent/student contribution $1,500 per year, which would lead me to think everything else is covered in the long list of mostly loans. Heck no, if I subtract the total of everything in the package from the total cost of attendance, there's still a gap of over $10,000. Bad math or just misleading someone into thinking their school is 'giving' a generous aid package?

[Kelly S]

12:54 PM on 04/25/2012

They usually offer a Parent PLUS loan, which requires a credit check, before they even determine whether than parent is able to pay it back. Also, beware the term "alternative financing" - that's what they call private loans.

[nephilim978]

12:34 PM on 04/25/2012

Why are so many people here complaining about colleges and financial aid being a scam. Its clear from the posts that most of the people complaining never actually went to college and know nothing about financial aid.

You know how you avoid debt? Don't Borrow. Look at that, see how simple that is? I know. I know, but Mr Sarcastic Man, College is expensive!

Congrats! You get a cookie. College is expensive. Water is also wet. what's your point?

Did you save for college? Did you set money aside so you wouldn't have to borrow for everything? No? You didn't? You're borrowing to pay for rent instead of working a part time job? Well then quit complaining, kiddo.

Oh. You wanted your education to be free. You want everything to be handed to you. You don't want to work for anything? You want to redefine the meaning of Financial Aid to be what you want it to be.

Sorry kiddo, welcome to reality. Work for it like the rest of us.

Or don't. But at least have the decency to be quiet. No one wants to hear your opinion about anything.

[Paul Pen]

12:30 AM on 04/26/2012

Hey "nephilim978", I recommend making your posts earlier in the evening from now on--before you've had a six pack of beer.

[dmeekthemimi]

10:38 AM on 04/25/2012

Remember - IF YOU GET PELL - IT IS NOT A NEVER ENDING FONT OF MONEY!! You can only get it for a certain number of college hours. If you burn it up on electives or change your major, you may have to fund your last few semesters on your own.

[1jadednewyorker]

10:34 AM on 04/25/2012

I really feel sorry for 1st generational college students. Boy they are in for a surprise. They have noone to guide, to navigate this jungle of so called college "awards"

Dont forget about the BAIT AND SWITCH monies. Monies your 1st and 2nd year and no monies for the remaining year then it is TOO late to transfer to another school. Another tactic is to tell the student they will receive a FULL scholarship if they maintain a 3.5 or better. NOT all students can do this MOST cannot because of the dreaded CURVE.

Educate your families please. If you know of a student alert them to these scam.

[wutzurbeef]

12:06 PM on 04/25/2012

Also don't forget about another bait and switch tactic. They tell you ALL your fees will be paid by the student loans, and then you get hit with a 200.00+ a month fee from the college ITSELF which many times is NOT disclosed and not paid by the student loans.
If you don't pay it, you are kicked OUT of your classes, and they accelerate the loans as due immediately. In other words, the college KEEPS your loan money for services not rendered, and you foot the bill.
Unless you are part of the 1%, you cannot fight it, because the colleges will trot out their vast array of lawyers against you.

[lcr999]

01:33 AM on 04/26/2012

Duh..they are COLLEGE STUDENTS. They are bright.

And sorry, if you are getting a merit scholarship , they you had better be meritorious.

[dmeekthemimi]

10:19 AM on 04/25/2012

The worst thing they do is allow students to buy cars and pay rent with college financial aid loans. My daughter had scholarships until this last summer semester. She will have to borrow about $3000.00 for books, tuition and a new - refurbished - computer as her apartment was burglarized and they stole everything. But we can pay that back comfortably - even at the new 6.+ loan rate. We will do the 10 year and pay it off early. But she has a friend who is so far in debt, I don't think she'll ever get out. she has a child, no husband, and her baby's father doesn't pay her a dime. she has bought a car, paid a 4 year's rent, clothes for her and the baby, all sorts of things on student loans. And she's graduating with an art degree!! She will never get a job paying for that loan in that field when the city we live in - and she has no intention of going to a larger city - much less care for herself and her baby. She thinks she will make enough money to sell pottery at flea markets and city fairs, etc. to make a living! She says she is going to open her own shop. I can see that in her rent subsidized apartment! But colleges don't counsel the kids - they just take the money and run!

[lcr999]

01:37 AM on 04/26/2012

Re: the friend....sounds like a series of very bad personal and financial "decisions". And whose fault is that? Did the college tell her to get Pregnant by a deadbeat or tell her to buy a car. Should they tell her she can't major in art?

[FOXYROSE]

09:57 AM on 04/25/2012

Colleges are like the banks, deceitful! Why does everything in this Country turn out to be a scam!

[PlayTOE]

10:34 AM on 04/25/2012

Why does everything in this Country turn out to be a scam? Because people keep voting for Republicans, no matter how often they get hoodwinked.

[FOXYROSE]

10:47 AM on 04/25/2012

Oh, now I see! Dems only have the public's well being at heart! That's why they de-regulated the banks under Clinton. Look at the colleges - they have endowments in the billions and they own a lot of property - less than 10% of that money actually goes to students. The faculty has looked out for themselves and they have great retirement perks also. The more money thrown at the schools the higher the tuition.

[lcr999]

01:37 AM on 04/26/2012

No, students are unrealistic.

[Kurt Mundt]

03:39 AM on 04/25/2012

Thank golly I did college in the 80's and 90's - the cost has gone up over the rate of inflation every year since I began in the early 80's. One suspects a racket between the schools and the "lenders" - or at least a symbiotic relationship.