From the Archives: Misleading Financial Aid

It's not just the think tanks and advocacy organizations that are up in arms around college financial aid letters. The federal government has entered the fray as well, with a harsh report that, among other findings, showed that a whopping 91% of schools don't properly list their net price or the amount a student is expected to pay for tuition, fees, room, board and other expenses after taking into account scholarships and grants. Just how bad is this practice? Rachel Fishman from the New America foundation actually joined me and Jeff in April of 2019, that's right, over three years ago, to discuss her research around this topic. The headline it was bad then and it hasn't gotten better. On this episode of Future youe, we revisit that conversation with Rachel Fishman.

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Jeff

I'm Jeff Salingo.

And I'm Michael Horn. On Monday this week, the U.S. government Accountability Office, what's known as the federal government's watchdog, issued a report saying that the aid letters that are supposed to help students decipher what they're going to pay for college and where they can get loans, work study, and other financing options to cover those costs, lack crucial information to compare institutions, and at worst, the report said, those letters contain misleading information that causes students to enroll in schools they can't afford. The report suggested that schools omit all sorts of important information, for example, as Melissa Korn reported in the Wall Street Journal, which leads to letters that are hard to decipher and make sense of. Indeed, the report found that no school that it monitored adheres to all of the 10 best practices around price transparency in its financial aid letters. And the report also found that some schools not only withhold the information, but they also do so intentionally. This obviously isn't good news, and it provoked a sharp outcry. Representative Virginia Fox, who is set to become the lead again on the House Committee on Education and labor when the Republicans take control of the House in January, said, quote, I am disgusted at the endemic level of deception currently happening at colleges and universities. She was the one who requested the GAO review. Richard Cordray, who is the CEO for federal student Aid, expressed serious concerns about the lack of transparency and comparability among letters. Preston Cooper, a senior fellow at the foundation for Research on Equal Opportunity, wrote on Twitter that, quote, this sort of behavior would get you you hauled before Congress. If it were any other industry in higher education, it's accepted as normal. Colleges are not your friends. They are rent seeking special interests and we should acknowledge them as such. Interestingly enough, Rachel Fishman, the Deputy Director for Research at the Higher Education Initiative of New America, had written about this very topic the week prior on Twitter. In specific about yet another task force being formed to, try to, quote, solve the issue. She linked to New America's original research on this topic titled Decoding the Cost of College, which was released back in June of 2018, as well as to a newer report, Design Principles for Financial Aid Offers, which New America released in January of 2021, which offers a way forward for these financial aid letters. And Rachel advocated for a bipartisan bill in Congress to help students understand these letters as she expressed skepticism that the task force would solve anything, saying that congressional action was necessary. With the release of the GAO's report, Rachel wrote, GAO recommends Congress take up this issue requiring colleges to provide students financial aid offers that follow best practices for providing clear and standard information because nothing else has worked. She also included a link to her blog on the report in this conversation, Jeff and I rewind time to April 2019 to play back our interview with Rachel to unearth the exact nature of the problem and what her findings about college financial aid letters said all the way back in 2018.

Rachel, welcome to future you.

Thanks for having me.

Great. And so the question that we ask all of our guests is how did you get started in higher education?

I entered the workforce in 2007 2008. Not a great time, not a great time to be graduating from college. And I always thought I was going to be a lawyer like a lot of people who graduated in 20078 with a poli sci degree and I worked in corporate law for a couple of years and I saw corporate law hemorrhaging jobs and I saw what it took to be a lawyer and I decided it really wasn't for me. I had worked a lot of student affairs jobs when I was in college and I decided I wanted to pursue a career in student affairs. And so I ended up going to graduate school for higher education administration. And while I was there I decided that I really wanted to move more into policy because I had a fellowship working with low income, predominantly adult students, helping them access financial aid, navigate the pathway towards higher education. And that's when I really discovered it would be really, it would be really fruitful and useful for my time to pursue public policy because I felt like I could reach more students through that angle. And so I ended up landing in Washington, D.C. i pretty much been with New America the entire time. New America is a public policy institute. So we're basically a think tank. And I spend my days thinking about how we can make the pathway to higher education better for students, more accessible, especially for underrepresented students of color, more for low income students, how we can make it more affordable, high quality, and hold institutions accountable.

So one of the issues with accessibility, of course, is trying to get students into college, but it's mostly about paying for college. So let's talk a little bit about this research you've done on financial aid letters. I've always thought of financial aid offers as kind of marketing pieces from colleges or universities. It's kind of like when you're buying a car, oh, look what a great deal you're getting. And many colleges, I think it seems that their financial aid letters are like that. So what was the impetus for the research around these financial aid letters? Because this has been in the news a lot, even under the Obama administration, they try to come up with more templates for these things. What was the impetus behind this research?

So I've always been interested in award letters stemming back from when I was in grad school and working with students to navigate the pathway. So I worked with predominantly adult students, but I also helped traditionally aged students navigate the pathway as well. And I saw their award award letters, which is something I didn't really remember from my undergrad experience. Maybe my parents dealt with them, I don't know. But I saw them and I was like, these are really confusing, misleading. I had to sit with parents. I had a hard time trying to figure out what these award letters actually were saying and what was on the line and what the family would owe at the end of the day. Especially for the students I worked with, price was really one of the number one concerns, if not the primary concern in deciding where to attend. So that was always something in the back of my mind. But the problem with award letters is that they're really hard to get from the institution because they're all sent to individual students. So it's not like you can hop online and check out what an award letter looks like at university A and at college B. And so the problem has always been, well, where can we get these letters? And luckily I made the Lumina foundation put us in touch with you Aspire, which is our partner org on this work. And they work directly with students. And they'd been collecting these letters for years and making a repository to help their counselors counsel students about where to go, like where students would get a good deal, students that they worked with, but they realized over time how useful this repository would be for doing research, doing policy research, providing people in the media, policymakers with what these letters look like. And so we partnered together and we were able to analyze over 11,000 of these award letters and we found lots of issues with them throughout. This was really a lot of low income students, primarily from four year public and nonprofit institutions.

To go a little bit deeper, what were those important findings in terms of the issues that you were seeing, and I'm assuming discrepancies between how different letters are even describing the same financial mechanisms and so forth? Or talk to us about those findings.

Exactly. So we found that, for example, one of the most common federal loans you'll, you're going to find in almost every financial aid package is the federal unsubsidized student loan. Of the 500 letters that we looked at from unique colleges and universities, there were 136 different ways that the institutions were calling this loan, and 24 most concernedly did not call them loans. They either truncated the word loan or the word just wasn't there. Maybe it just said federal unsubsidized, and it's just the same kind of loan. Like, can't we all get on the same page and call it the same thing? I think another major, a major finding was that over a third of letters didn't include any cost information. So imagine trying to figure out how far that financial aid package goes. You get this letter that's like, congratulations, here are all your awards. But nowhere on the letter does it say, but this is how much it costs. So this is what you have to subtract from. Even when institutions did do the math, so rarely did they do the math because there was no starting number. But when there was that starting number and they did do the math, we found there were 24 different calculations on all these different letters, and some of them were called the same thing. So we have a federally defined net price, which is the full cost of attendance minus grants. And we saw institutions calling things net price or net cost that were maybe just the direct cost. So those things paid directly to the institution, minus grants and sometimes minus loans. So even when on one letter you have net cost, it might mean one thing, and then on the other letter something might say net price or net cost, and it might mean something totally different. And so institutions. So I mean, students think they're making this side by side comparison because they both have the same terms, but they're actually not the same thing.

So it feels totally apples to oranges. And they're probably confusing it because it's confusing even. Even if it's written in straightforward language.

Exactly.

Did you see any correlation of certain types of institutions more likely to describe it one way versus another or. And what's sort of the incentive for colleges to obscure all this?

I don't think we really didn't look at trends of, you know, what were the public four years doing as opposed to the nonprofits. It is an interesting research question as to what for profits, which we didn't really have any of, or public two years, which we know lots of students in America go to what they. What they're doing with financial aid award letters. So I think that's a different. That's a different research question. In terms of incentives. I think a lot of what's happening is just institutions haven't really thought about it. Their award letters, they come pre canned in a lot of software that helps the institution function. I absolutely, to Jeff's point at the beginning, think that some institutions are engaging in enrollment management tactics to try to make their financial aid packages look better than they probably actually are. I mean, it's hard to see, say, when you get an award letter that says, first of all, that it's even called an award letter is a misnomer. But it says congratulations. And then you look at it and not only does it have the full amount of student loans, the full amount of federal student loans, but then it also has something like $30,000 of a plus loan stuffed in there, bringing your net cost quote, unquote, to zero. It's hard to forgive situations like that where you just see this zeroing out of packages, making it seem like the student has a full ride. And so I think those, though we didn't always see something like that. It wasn't something that was happening. Like, it's not like all the letters engaged in that practice. Where we did see it, I think I had questions of what is actually the goal of the institution. It seemed more like an enrollment goal versus really thinking about what a loan like that would mean for a low income student because again, these were predominantly low income students that we were looking at.

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so the federal government spends a lot of money, a bundle of money on federal financial aid every year. They you would think they would have a, a say in how these letters are produced. Why is it that when I go buy a house and Michael buys a house that we have this federal HUD form that every bank has to provide days before closing, but here you are, another huge purchase in life and there is no federal essentially regulation on what these letters should include and how they should be designed even.

Yeah. So there's no law for financial aid award letters. So right now there's nothing you can really regulate on about how these should look. So there's been a lot of voluntary efforts. There's the shopping sheet, which is now the college financing plan that was a partnership between CFPB and the Department of Education. That's voluntary. Institutions can participate in that. Otherwise, until we change the law, there's no reason for institutions to change their behavior. For a few years now, starting with Senator Franken, around the time of the shopping sheet, they introduced the Understanding the True Cost of College act and it's been reintroduced every year since then. Right now it's with it's sponsored by Senator Grassley and Senator Smith and so hopefully we'll see a reintroduction of that bill in this Congress.

What are the challenges with making this more templatized so that you can have consistent language like what's standing in the way of doing that?

I think with this shopping sheet, for example, we've seen that institutions want to kind of do things their own way and so what they end up doing is they provide not only the shop sheet, but then they'll, when they voluntarily participate, they'll also provide like their own award letter on their own letterhead. And if you're a student, what are you going to trust more? You're going to trust the thing on the, on the letterhead. And unfortunately, because there's no alignment with terminology, the numbers on these two things from the same institution, the shopping sheet from Institution A and the award letter from Institution A, they don't match. And so that's really concerning for students and families. So I think with any effort to create a template, it's also going to require having the institutions use standardized language throughout all of their publications, so that if you do issue a supplemental form or you have some supplemental explanation, we're making sure that net price is the federally defined net price as opposed to something that the institution made up.

So, Rachel, these financial aid letters obviously reflect what's happening here in Washington. They reflect policy around Pell Grants, they reflect policy around subsidized and unsubsidized loans, around Parent PLUS loans. You mentioned gapping, which is very popular, unfortunately, among a lot of colleges and universities, where they have this huge gap that students have to fill. A lot of that's filled sometimes by the PLUS loans. So we're now in a lot of discussions around the Federal Higher Education act and what's going to happen there. There's a lot of proposals flying around about, around loans in particular, not asking you what's going to happen. But for our viewers who are not paying attention every day to every little piece of what's happening on Capitol Hill or even recently the Trump administration coming out, what do you think is the most significant thing around financial aid that's at least being discussed out there that people should be paying attention to? Is it around the subsidized loans? Is around Parent PLUS loans?

What's significant, I think overall, what's bipartisan and what's good news for students and families is that there is this impetus that everything should be simplified. Right now, it's just way too complicated a system. You enter, you've got tons of different types of loans, you exit, you have lots of different types of repayment programs. And so I think that's great news for students and families. I think where it gets a little bit chattered is when you start deciding to, for example, reduce the amount of loans available or start capping loans in different ways, like with parent loans. What does that actually mean in the system overall? Is it going to be an overall reduction of aid. We know that the Pell Grant, which is such a cornerstone of financial aid for low income students, really needs to be expanded, needs to be pegged to inflation. That's always really challenging to do. And so if you don't do that and then you simultaneously start limiting loans

or charge interest on those loans or

charge anything, what does that, how does the system look after that? And what can we do to ensure that students aren't actually losing funding overall, that we're making the right decisions about borrowing and repayment to make sure that repayment is affordable? There's a lot of great plans out there making sure whatever we reduce the number of plans to that the income driven repayment plan is still available and generous and students have awareness of it because that's the real insurance on your student loan. It's not necessarily like, should we be limiting loans? I mean, we should think about being prudent borrowers. But at the same time, it's much more important for students to take the money on the table if they need it and be aware of the generous repayment terms of federal student loans.

So one last question around. You mentioned simplification. We were talking about kind of more transparency around these award letters. It seems all of this is driving to this issue of debt, right? And people on both sides of the issue here, some say there's way too much student debt. Others say it's not as big of an issue as the media likes to make it out to be. And I think there's probably truth in both camps. But will, for example, better financial aid letters, more transparency around them? Will simplifying student aid, will it necessarily lead to less debt? Is that the goal here? Or what's the goal of both simplification and more transparency around the letters? What's the ultimate policy goal here? Is it access at lower cost, or is it access just where people at least know what they're getting themselves into?

I think I fall more along the camp of know what you're getting into. I don't. I think there's a lot of agitation over borrowing. And absolutely, I wish we had more grant aid in the system and that things were more affordable. And I don't love the idea of increasing loan limits. But from your research. From my research, we've seen that students just face gaps. And the reason why low income students are borrowing these loans is because they need them. Not only do they need those loans, they need more. They need more grant aid or perhaps even more federal loan aid, but they're still facing gaps even after they take everything that is offered to them. So I think, you know, providing better information isn't going to suddenly make them stop borrowing. I think they're still going to take all the money on the table. But knowing what the built in safety mechanisms are for that debt, helping them feel like they can take that debt and don't feel saddled with that debt, I think is even more important in this scenario where what I want to happen is that community colleges are great. Everybody is able to access a community college if they graduate high school. But what I'm increasingly concerned about is that low income students are seem to be shut out from their four year public in state institutions. And that's where I have a lot of concern of if you need to take those loans, if we need more funding in the system, if you are academically qualified and you want to go to a public four year institution within your state, you should absolutely be able to do so. And I'm becoming more and more concerned that we're telling students to start in the community college sector or reduce their borrowing or make a whole host of other decisions that might not lead to to their success.

And the problem about starting in the community college sector, great institutions, but if they want to transfer, it's increasingly difficult for some of those students actually get a four year degree later on.

Exactly. You should have the opportunity and choice within the system that if you are academically qualified and want to attend a four year institution, you should absolutely be able to. And the fact that we're shutting the doors to those institutions is deeply concerning from a policy perspective.

Perfect. Well Rachel, thank you so much for being with us today on Future youe a great conversation and particularly timely at this, at this in the spring of this year. So thank you very much.

Thank you.

And to all of you tuning in, thanks for joining us on Future youe for this bonus episode where we looked deeply into the problem of financial aid letters to students, a problem still persistently present at colleges around the country. We'll be back next time.