The Financial Aid Letters Mess

This is Future youe with Jeff Salingo and Michael Horn.

Welcome to another episode of Future You. I'm Jeff Salingo along with my co host, Michael Horn. It's springtime, which means in higher education, it's the season of admissions offers and financial aid packages. And we have with us today Rachel Fishman, who's deputy director for research at New America's Education Policy Program, who's really been an expert in doing a lot of work in this area of financial aid policy. And in particular, Rachel has been working the last couple of years on extensive research around financial aid letters and basically their lack of consistency and transparency, which we're going to be talking a lot about today. Because again, one of the biggest complaints I get from parents and students, I'm talking about is how do you compare these things? So we'll be talking about that. But first, Rachel, welcome to Future U.

Thanks for having me.

Great. And so the question 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 2007, eight 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, you know, 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, for, 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. In 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 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 with 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 prime, 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, from unique colleges and universities, there were 136 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 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 gross 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 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 applicable 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're doing with financial aid award letters. So I think 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 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. 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 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.

So the federal government spends a lot of money, a bundle of money on federal financial aid every year. You would think they would have 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, 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 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 shopping 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 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, 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 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 subsidized loans? Is it 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 challenging 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. It'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, and 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. 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 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 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 to 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 in the spring of this year. So thank you very much.

Thank you.

This episode of Future youe was made possible with support from the Academy for Innovative Higher Education Leadership. The Academy is a partnership between Arizona State University and Georgetown University and is the premier training ground for those who aspire to senior leadership positions in higher education and those who want to lead organizational change at colleges and universities in the future. This episode was also made possible with support from Entangled Solutions. If you want to shape the future of education, Entangled Solutions would like to hear from you. Entangled Solutions is hiring smart, mission driven team members interested in helping world class institutions solve their most vexing challenges in learning and education. Learn more at Entangled Solutions.

Welcome back to Future You. Just coming off a conversation with Rachel Fishman from New America about the research that she has done looking at financial aid award letters from colleges to hundreds of students and the discrepancies and obscuring perhaps of price that that students will in fact pay and all the financial vehicles underlying those. It brings to mind Jefferson, a passage from J.D. vance's Hillbilly Elegy actually where he talks about when he was applying to college the first time around and he has this line, all the talk of unsubsidized loans and this and that and this, and he said I just couldn't figure it out. And so I opted for the military in effect. So you've been obviously spending a lot of time in this space and, and I think people know how critical financial aid is in the admissions process. But what are you learning about how these admissions offices think about it on the one side and then the students, how reliant are they and how are they processing sort of when they hear their information and what and what form they get it in?

Well, so at many institutions there is really no dividing line anymore between admissions and financial aid. You know, I'm fall, I happen to be following two institutions that are need blind, which means that in admissions they don't take financial aid into consideration. They figure out how much a class is going to cost and they have a commitment to also meet full need, which is a little bit different than

just being need blind admitting and then saying figure it out,

we'll make sure that we fill that gap. As she talked about, that's not the case in most institutions. Most institutions are what they call need aware or resource aware in admissions, which means they shape their class based on who could pay. So they'll take more full pay students. Doesn't mean they won't take any low income students, but they have to figure out how to pay for that. Or what they do is they're need blind and they just say here's what we have to offer you and you'll have to figure out how to come

up with the rest.

And that's the gapping issue that she talked about. And the gapping issue. But institutions is getting bigger and bigger, right. I'm following a student in Pennsylvania who has a $10,000 gap, right. And his mother makes less than $40,000 a year.

So just to be very specific, that means that there's a certain amount that he can pay through the financial aid awards, whether that's mixture of grants, loans, and then there is $10,000 or above that in order to, he's got to somehow come up.

And by the way, that's private. Yeah. In the private market or, or some rich uncle that he didn't know about. But mostly what happens is those students take out other loans, right? They take out their parents, take out these parent plus loans, they find other private loans in the market and that's how students end up with deep in debt and they don't really understand these loans. And colleges sometimes, as Rachel said, will even fill in that gap for students by saying they're going to give them a parent plus loan, which basically then means it looks like you don't have to pay anything when of course you are paying with the, on the other side of it plus loans. I mean, so there's been some reform around this. Right. So a couple of years ago we changed kind of the FAFSA deadline, we've changed the tax forms that you need for that, which is called now prior, prior year. All this has meant that colleges can package students around financial aid earlier than ever in the past, right. It used to mean that your package used to come in like March, April, and you had to make a decision in a couple weeks. At some schools, especially less selective schools, if you find out you got in and November or January, you'll get your package soon after, which means you have many more months to figure out the financial piece of this. But it still doesn't stop us from what I think is the biggest issue facing higher education right now is affordability. Right. And it's not just, you know, Rachel obviously is. Her research focuses on low income students as middle income students as well. And you know, colleges keep pushing on the price. They don't have a lot of financial aid coming in the door. Right. So they don't have of philanthropy except again at selective institutions, they don't have a lot of philanthropy. They don't have the government, you know, continuing to push up the Pell Grant or push up Student aid. So what happens is they have to figure out ways to make this look better to get you to enroll. Yeah.

And. And the other side of it is they look. They make it look better, but then on the other side of it, they're either cutting costs, so finding ways to not improve their programs over time because costs are inexorably going up at many of these schools based on employment, just keeping wage increases and maintenance and so forth. Or on the other side, as you point out, you could hold the line on revenue and play that game, but that gets tricky, doesn't it? Yeah.

And I think one of the issues here, Michael, is that we've talked a lot about student success on this program, and we've worked in the areas that we're working with technology around student success. And it seems to me student success always focuses on academics, and it's always about all these programs that have started at many colleges and universities around technology to make sure that the student is retained and graduated. One of the biggest retention issues is money. And I think a lot of these students who are gapped, they end up taking, for example, this kid I was telling you in Pennsylvania, $10,000. Well, what happens his sophomore year? I really don't want to take that. I'm gonna figure out another option. He drops out. That's student success. Right. And it has nothing to do with academics. It has everything to do with financial aid and that part of the market, from the kind of ed tech world and from the finance world and the startup world world. Except what the ISAs, which I want to ask you about, hasn't really been kind of a focus of theirs. And I wonder why? Is it just kind of a hard problem to solve?

My gut is that. Is that there's a. I think. And I think you're right. First, let's just be clear about this. I think the research is that more than academic problems, financial aid, or, excuse me, financial problems, family issues, and the need to. And that could be, you know, having a kid yourself, needing to care for a sick, or one needing to work to make it work for your family. Any of these issues, I think, is actually more likely to cause a dropout than is the academic issues.

But the academic issues were the ones

to be solved, to be solved, because they're actually directly in the purview of the institution. And so I think the really challenging thing is, could you start to develop technology that would predict these things at least in advance, so you could build contingency plans in there or not put a student in the position of starting a school where you can actually see very clearly a situation is going to arise that's going to cause them to drop out. And, and frankly, from my reading of it, the loans aren't the problem if you complete college. The loans are the problem if you drop out. Because now you've got debt without a credential that allows you to get a premium in the marketplace when you get a job. And that debt, even if it's small, becomes a lot harder to pay off at that point. And so from my standpoint, I'm just, I think that a lot of the companies out there just aren't sure exactly how to tackle these because they feel like problems that occur outside of higher education, if that makes sense. And so if your customer is the university, they're just not sure how to tackle that.

One exception with is the ISAs.

Yeah, well, so income share agreements are one, but just one other brief one, which I think you're seeing some exceptions in a couple ways. One, places like Re Up Education, which is full disclosure, a company that entangled incubated Re Up Education helps re enroll students who have dropped out and then put mentors around them to help them navigate the college compliance completion process. A lot of that mentorship comes in the area of how do you think about these financial burdens and other life burdens that get in the way and helping you figure out solutions for that. It's not so much of a technology solution, although technology can play a role in pattern recognition to inform the mentors that are supporting you. So that seems to be one solution. ISAs are certainly another. And income share agreements basically so that you aren't paying something right now and that rather than a debt vehicle, it'll be a percentage of your income going forward in years, in the years ahead. What we've seen is income share agreements to this point has been the solution to that gapping as a replacement for the private student loan market. It's not at this point, it's not overthrowing our system of aid with its Pell grants plus subsidized federal loans and things of that nature. But really that gap where people would traditionally go into the private loan marketplace, we're starting to add in income share agreements that from my perspective are much more favorable terms to students because they're not asking you to for a set contribution every single month. Instead it's going to be variable with your income and not go above a certain amount. Right. 12 and a half percent seems to be the amount from an income based repayment model. Which is a different thing than an isa, but it seems to be a proxy for the high end of the ISA market.

And then one other I guess issue on this is one other institution that has been tackling this is Georgia State, which has been doing a lot of innovative things around student success. And one of the things that I wrote about years ago is their micro grant program which again uses technology to identify students who are a little bit closer on the completion side. So they might be seniors even or juniors and they might have just a little bit of a gap that might cause them to drop out or they did drop out because they couldn't pay that gap. And what ends up happening is the university comes in and provides that. And you know the average grant of these micro grants is 500 to $1,000. Right. So that's a small price for the university to pay to get that kid to completion.

Yeah. And basically it's a little liquidity to your point that the institution can put in and to get a much better return on it back for both the student and the institution. I think that's a high point of leverage. The other one that I think you should see more of is is company solutions that help match our work study opportunities that mirror what the academic program in the institute, in the university itself. And and I wouldn't be surprised to start seeing experiments start to emerge in the months and years ahead where people say how do we incentivize the behavior of institutions like in Northeastern? And we obviously had Joseph Ioun on this program who they do a great job with the co op model we've talked about where you're actually doing externships that are for credit and relate to the major in the college itself. I can imagine because we've seen this companies emerge, that tech companies emerge that start to identify projects within companies and then make those available to students for credit. Why not do something like that in a work study model in some ways to fill in some of that gap a la Michael Sorrell, also at Paul Quinn College. I think you can see technology solutions start to better matchmake on that front.

Well, it was great to have Rachel with us and thanks to her for joining us on today's episode and sharing her research. And thanks for you to tuning in to Future youe. And if you like the show, please be sure to give us a five star rating on itunes or wherever you get your podcast. I also want to thank Steve Shigeris and Lauren Dibble who help us put together this show on a regular basis and so thanks to them for. For helping us out and look forward to seeing you next.