Invitation For Debt: How Financial Aid Letters Are Tricking Prospective Students


There are two things in life that can send me into an instant tailspin of anxiety: taxes and filling out the FAFSA. Although I’m not a numbers person, I’ve always been able to write a budget and even calculate retirement savings. But something about the unfamiliar terminology and complex structure of tax and FAFSA forms shuts my brain down.

Luckily, I got through the FAFSA unscathed, but that’s not the case for everyone. And recent reports show that it might be harder than ever thanks to one more confusing element: the college aid letter.

Apples to Oranges? Why Two Financial Aid Letters Don’t Look the Same

It turns out that filling out the FAFSA isn’t always the hardest part of preparing for college – understanding the college aid letter is. A recent article in Reuters highlights the confusion of college aid letters; mainly that no two aid letters are required to look exactly the same:

“’There is no mandatory format for college aid letters, and many institutions leave out key information that could help families make informed decisions,’ said college consultant Lynn O’Shaughnessy, author of ‘The College Solution.’

‘There are all these tricks schools play,’ O’Shaughnessy said. ‘If you don’t know how to interpret, you’re not going to know if the school is going to be ripping you off or if it’s going to be generous.’”

It seems a bit counterintuitive that schools wouldn’t be required to adhere to one standard format for a rewards letter, which could be why the Obama administration created the “Financial Aid Shopping Sheet.”

Financial Aid Shopping Sheet

An example of the Financial Aid Shopping Sheet

This sheet was created to give colleges a uniform structure to show students and their parents how much it will cost for them to attend. Problem is, according to expert Mark Kantrowitz, only about 2,000 schools are using it. Even worse, those schools not using it may be those most likely to deceive you:

“‘It’s hard to compare college affordability when only a third of the colleges are using a standardized financial aid award letter,’ said Kantrowitz, author of ‘Filing the FAFSA: The Edvisors Guide to Completing the Free Application for Federal Student Aid.’ ‘The colleges that refuse to use the shopping sheet are among the colleges with the most deceptive marketing practices.'”

For even more information on the confusion of the college financial aid letter, read this article from The New York Times.

How to Understand the True Cost of Your Chosen College

As frustrating as this may be, it’s not enough to wait for all colleges to get on board – especially if you have a child getting ready to attend next year. So how can you determine what each college will cost in the long run?

Understand the difference between free aid and loans: The term “financial aid” does not only refer to free money (although it may seem as though it does). Aid can come in the form of grants that never have to be repaid and/or loans that do. Comb through your financial aid letter and make sure you know exactly how much is free and how much has to be repaid.

Do your own calculations of the cost remaining after free aid is used: Another common misconception is that the aid and tuition and fees will remain the same from year to year. However, both can vary: tuition can go up any or every year and grants may sometimes only be offered for a limited amount of money or a limited amount of years. Find out how much you’ll receive in grants and/or loans in the first year. Then calculate any remaining costs and consider the costs of increased tuition in the following years.

Don’t forget about miscellaneous costs: Finally, look into the other costs that aren’t outlined by the letter. What’s the cost of living in the school’s town or city? Will all of that be negated by dorming and food plans? Or will you have to factor that in as well? Whatever the case, don’t count on the letter to outline all of this for you. Do your research on all the extra costs that can come up when school starts: from general living expenses to books to trips home and back.

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The Most Important Calculation: Cost-Benefit Analysis

When all the calculations are complete and it’s time to make a decision, don’t forget about the most important calculation of all: the cost-benefit analysis of choosing a school. Historically, it made sense to go to the best school that you could possibly get into. But nowadays research is showing that it might not matter where you go to college. Colleges and universities are upping their game and attracting talented professors from far and wide, so attending the highest ranked school may not end up being worth it if you’ll have to go deep into debt in order to attend.

I can say from my own experience that I’m glad I thought a lot about this when I was choosing a college. Initially, there was one school in particular I really liked but that would have left me in massive amounts of debt. I took my eye off the promise of prestige that school would give me and instead focused on my real needs. I ended up going to a smaller state school that was 75% less expensive and that helped me create relationships with amazing professors that have lasted years after graduation.

When you or your child make this important decision, don’t be blinded by the promise of prestige. Rather, consider the school you’ll most thrive in, that has the best program for your major (or potential majors), and that has a strong reputation of support for the student body. That way you can ensure you’ll receive a degree that’s worth far more than the price tag.

Image Credit: Nate Bolt

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