Consumer agency looks to simplify financial aid

NEW YORK (AP) ? The true cost of college may soon be easier to predict.

The Consumer Financial Protection Bureau and Department of Education on Tuesday announced a project to simplify the financial aid award letters that colleges mail out to students each spring. The goal is to help families compare costs of various schools more easily.

As it stands, critics say colleges often obscure the inclusion of student loans in financial aid packages to appear more affordable.

For example, the letters often highlight an “out-of-pocket price” that subtracts the amount students would have to borrow to bridge costs. Now federal officials want feedback from the public on a “financial aid shopping sheet.”

The draft version of the form, available at , makes clear distinctions between scholarships and loans; it also includes key figures such as the estimated monthly payment and total debt upon graduation.

“The stakes have never been higher for students and their families to clearly understand the costs and risks of student loans,” said Raj Date, an official with the Consumer Financial Protection Bureau. “Having a simple, one-page financial aid shopping sheet would help students compare offers and choose the one that’s right for them.”

A final version of the form, expected in coming months, could also include the school’s graduation and loan defaults rates.

The Department of Education was required to develop the model form as part of the Higher Education Opportunity Act of 2008. The adoption of the simplified forms would initially be voluntary, but Congress could vote to make it mandatory for schools that receive federal financial aid.

The push to standardize financial aid award letters comes at a time when students are borrowing more than ever to keep up with soaring tuitions. The Institute for College Access & Success estimates that two-thirds of graduates have student loans, with an average debt of about $24,000.

One reason for the ballooning debt loads is that students don’t always realize how much their loans will end up costing them. That’s partly the result of the “jargon-laden financial aid award letters using inconsistent terms and calculations,” federal officials said in the release announcing the new initiative.

In testimony at an Education Department hearing on the matter last month, financial aid expert Mark Kantrowitz noted that college is one of the few major life expenses that do not come with standardized disclosures about costs.

Kantrowitz, who publishes, noted that the financial aid letters don’t always distinguish between grants and loans and often don’t include basic information on loan terms, such as interest rates.

Yet if a student took out $24,000 in student loans, the interest charges alone would add up to $9,100 if repaid in 10 years. That’s assuming the favorable interest rate of 6.8 percent that federal student loans carry; interest rates on private loans can be higher.

Making matters worse, critics say schools play an ambiguous role in pushing student loans.

“The first financial adviser that a student runs into is a financial aid officer at the college,” said Anthony Ogorek, financial adviser in Williamsville, N.Y. “Students needs to understand that these officers don’t have a fiduciary responsibility to them.”

Families have also been conditioned to believe that a college education is an investment that will pay for itself, Ogorek said. As a result families often take on huge debt loads without questioning whether it makes sense financially. With many graduates struggling to find work in the tight job market, the risk of taking on big debt burdens is becoming a harsh reality.

The plan to simplify financial aid forms is modeled after the approach that the Consumer Financial Protection Bureau took in revamping mortgage disclosures. Earlier this year, the agency began its “Know Before You Owe” project to simplify the paperwork borrowers receive when applying for a mortgage. Critics say improved disclosures could have helped prevent many of the past problems surrounding the subprime mortgage crisis.