Sunday, July 29, 2012

Higher Ed Watch: "New Financial Aid Shopping Sheet Standardizes Award Letters—But Will Anyone Use It?"

Rachel Fishman recently wrote an article at Higher Ed Watch about the new financial aid shopping sheet that the Department of Education and the Consumer Financial Protection Bureau (CFPB) are now offering to prospective students. The resource will enable students to decipher financial aid letters sent to them once they have been admitted into college(s). The CFPB provided a prototype - or "draft" - of this tool last October. But there's a catch to this new sheet: institutions don't have to offer it to incoming students. Since schools are not required to adopt the tool, Fishman raises valid concerns about its potential efficacy.

Indeed, it is not only unfortunate but somewhat troubling that schools are not required to offer the sheet. Instead, as already mentioned, it's voluntary. In addition, a recent piece published by The Huffington Post - and referenced by Fishman - includes an interview with U.S. Secretary of Education Arne Duncan. He made it clear that if schools do not opt to use the sheet, there will not be any "sanctions" against them. Duncan is, however, confident that most schools will "do the right thing," and provide it to students. But on what grounds does Duncan believe schools will actually use the sheet? Is that some gut feeling he has? In a word, what evidence does he offer to make that assertion?

Fishman is also right in saying that the voluntary option to use or not use the sheet is "one glaring, fatal problem." Even if the sheet will provide more transparency to borrowers, what will actually motivate schools to implement the measure? Again, there is no a shred of evidence that suggests schools across the U.S. will use this new resource to help incoming students understand their financial aid packages. Furthermore, schools control all funds disbursed to borrowers, and this is precisely why transparency is, overall, sorely lacking. The lack of full disclosure should disturb the public. When pundits and politicians, lenders and school authorities continually rant against the millions of borrowers who have defaulted on their loans or fallen behind on their payments, and pull the "personal responsibility" argument, it is important to remember that these institutions of higher learning are not regulated in any way when it comes to the way in which they allocate funds.

As for the interest in and commitment to using the financial aid sheet, a few institutions have already pledged to offer it. But with over 6,600 institutions in the U.S., the likelihood is that the tool will not be offered to the millions and millions of incoming college students. If that is the case, then why was it designed in the first place? Obviously, money and labor were put into its design and creation. So, does this mean that it will be another case in which invested time and labor will be wasted?

In some ways, it is reminiscent of IBR (Income Based Repayment program). While I do not have numbers on how many borrowers are now enrolled in IBR, last Fall - when I was on a press call with the White House - Melody Barnes, Director of Domestic Policy, admitted that only 450,000 people were part of the program. There are over 36 million Americans who have federal student loans and are no longer in school, which suggests IBR has not been properly implemented and promoted. That is one of the reasons the President spent time promoting the program when he visited college campuses at that time. The Department of Education did a poor job of advertising IBR. Even worse, lenders are not required to even disclose the program to struggling borrowers.

Will this also be the case for the financial aid shopping sheet? Will only a few borrowers have access to it, because schools will not offer it? 

The optional factor has gotten the attention of some politicians who are concerned about students and the skyrocketing cost of college. Senator Al Franken (D-MI), for instance, has realized the inadequacy of the sheet being optional. Fishman notes, "Franken understands the importance of a model financial aid letter for students, which is why he has introduced bipartisan legislation that would mandate its use. He wants to ensure that all students, not just those lucky enough to apply to schools that voluntarily adopt this letter or those using military benefits, understand the true cost of college. A scattershot approach will not help a student and her family line up and compare four different award letters on the dining room table."

The big picture, that is, the depth of the crisis, cannot be overlooked when discussing these sorts of plans and programs. Indeed, we need to be remember that outstanding student loan debt has now surpassed $1 trillion. Despite this troubling figure, the dramatic increase in default rates, and the lack of jobs for graduates (especially recent grads), there are currently no short-term or long-term solutions to solve the crisis. The severe hemorrhaging continues, and more borrowers are slipping off the grid and being sucked down a financial tube towards total and permanent ruin. The emotional cost is tremendous and is mercilessly hitting countless grads with debt - these painful truths should not be forgotten. Some, as I noted in a recent article and in an interview on NPR, are suicidal. When will there be viable solutions implemented? That remains to be answered.


Nando said...

If it doesn't benefit the "higher education" pigs, then don't expect them to use this, guys. Colleges and universities have been hijacked by soul-less businessmen who truly do not give one damn about the students or graduates. For them, it is about money.

Anonymous said...

I agree with Nando. Even if the sheets are implemented, I wonder if 18-year-olds will understand the repercussions of student loan debt. None of the dangers were ever disclosed to me, but if they had been, would I have been mature enough to understand when I was that age?

I hate to say this, but this "too little, too late" crap is getting old. First we make a huge soap opera out of "OMG will they raise the interest rates for new loans??," now we draft up these "honesty sheets" for new borrowers. In my opinion, it's just another way to distract from the real problem - like you said, Cryn, the 36 million people who are falling into total and permanent ruin.

These are good steps, don't get me wrong. The fact that the higher ups are finally acknowledging this issue and are aware that unless they pretend to do the "right thing," they're going to have us to answer to, is a move in the right direction. Perhaps we can hope that one day in the future, something big/real will happen because it will HAVE to.

I have to agree about the IBR issue. My husband applied for it and was denied over some technicality - one of his loans from 10 years ago wasn't eligible for one reason or another. Furthermore, when most of your debt is private like mine, it's a moot point, anyway. It's additionally concerning to learn that once your debt is "forgiven," it's essentially transferred from the DOE to the IRS, because you now owe taxes on it. There has to be a better way.

Anonymous said...


Is it just me or is the fact that we're now being transparent about the cost of college and the truth about student loans an admission that we haven't been forthcoming about this information up to this point? And if it can be considered an admission of withholding vital information, would it be a stretch to say that students were deceived in the past? And does deceit imply that the lender end of the bargain was not satisfied and that these so-called "contracts" were never legit/binding to begin with??

Maybe one of the dear struggling law graduates can answer these questions.

Studentdebtforlife said...

July 29th 11:04PM is correct. It is out of the Student Loan frying pan and into the IRS fire.

In that sense the loan is never really ever "forgiven"

Anonymous said...

Major problems with IBR! I qaulified for IBR with a payment of zero but within a few months ACS sent me a letter making me recertify within less than a year, which is against the federal rules! They even jacked up the payment beyond the IBR calculator! Honestly, none of these programs are made to help Americans. Americans have to unite and some together because too many students are killing themselves! Murderer James Holmes was once a student who just could not handle his life! Something is seriously wrong with our country when our students go nuts because there is nothing out here for them. We can't do American graduates this way. We have to protect our own. Student from other countries come here and go for free. People from other countries are paid by our government to start businesses but yet we can't because the student loans have ruined our credit. How do I give up my American citizenship? What's it all for? If I knew I could not even get on at the grocery store because of my loans then I would have never attended school period.

Ian Somer said...

To be honest, I also doubt that this new thing will have some efficiency. I think that only time can show. It is like turning to services like Essay Online Store: you don’t know if they will work unless you try them out. I know that this comparison isn’t really a good one, but you do understand the meaning behind it. I am voting for everything that can potentially make financial life!!! I will make sure my friends will find out about this feature