ED Issues Guidance on Financial Aid Offers, but Real Change Comes with Legislation

Figuring out how to pay for college can be intimidating for students and families. While federal, state, local governments, institutions and philanthropic organizations provide assistance to help students pay for college through scholarships, grants, and/or loans, understanding how that financial aid applies to the overall cost of college can feel confusing and, at times, misleading.

The Department of Education (ED) for years has been trying to improve the communication of price and financial aid to students and families through financial aid offers (sometimes known as financial aid award letters). Financial aid offers are the documents students receive from their college that should provide information on how much a year of college will cost and how financial aid can help defray those costs. Last fall, ED issued guidance on financial aid offers to financial aid administrators. While the updated guidance is a move in the right direction and has made clear what colleges should include or avoid in their financial aid offers, without legislative change, this guidance will only go so far.

For nearly a decade, researchers have brought up issues about the formatting practices of financial aid offers: the use of jargon, the misleading placement and application of loans, or the inconsistent calculation of remaining cost makes it hard for students to make apple-to-apples comparisons among offers from different schools. In 2012, ED, under the Obama administration, created the “College Shopping Sheet,” a standardized presentation of the financial aid package, as an effort to provide a voluntary common format for financial aid offers that colleges could adopt in the name of enhancing consumer transparency. While a number of colleges and universities adopted the shopping sheet (now known as the College Finance Plan) as their financial aid offer or part of their financial aid communication to students, the core issues with formatting and inconsistent use of terminology still largely remain since its use is voluntary and most colleges still do their own thing.

In 2018, six years after the creation of the Shopping Sheet/College Finance Plan, research from New America and uAspire that examined the formatting practices of financial aid offers from more than 500 colleges and universities found that these offers still fell far too short in helping students navigate cost and aid. The offers often used inconsistent jargon and terminology, did not mention cost, lumped all types of financial aid together even though loans and grants are fundamentally different, misapplied work-study or Parent PLUS loans to aid packages, did not follow a consistent way of calculating the net cost for students, and listed no clear next steps. One example that is illustrative of just how difficult it can be for students to make apples-to-apples comparisons: among the financial aid offers we looked at, there were 136 different terms for the federal unsubsidized loan, 24 didn’t even include the word “loan.”

The latest guidance to financial aid administrators from the Department addresses several issues with the current financial aid offer design practices and echoes our findings, along with further research we conducted where we user tested financial aid offers to understand the best design principles. These include avoiding calling financial aid offers “letters” or “awards,” always including cost of attendance, breaking down the components that make up cost of attendance such as direct costs versus estimated living expenses, and listing grants, scholarships, loans, and Federal Work-Study separately. The guidance also urges colleges to explain and calculate the estimated net cost, which, as the guidance defines it, is the difference between the cost of attendance and total grants and scholarships (this aligns with the federal definition of net price). Colleges should also separate out other options for paying the net cost that are not federal student loans, such as state/institutional/private loans, or federal PLUS loans. The guidance also emphasized the importance of having critical next steps laid out for students and families.

That the Department has promoted these recommendations and aligned next year's College Finance Plan to reflect them is a step in the right direction. Anything voluntary, as seen with the College Finance Plan, will never be widely adopted—institutions will continue to do their own thing, and students will be left to navigate their offers in the dark. Without legislation to require common financial aid offers, students will never be able to compare offers.

The bipartisan, bicameral Understanding True Cost of College Act (UTCCA), introduced by Senator Grassley (R-Iowa), Senator Tina Smith (D-Minn.), and Senator Joni Ernst (R-Iowa) requires colleges and universities to provide students with a common financial aid offer so that students and families can understand how much college will cost and compare financial aid packages from different colleges.

Students and families deserve to know how much a year of college is going to cost them and what their options are for covering those costs. When it comes to financial aid offers, we’ve seen time and again that institutions won’t change unless forced to. We applaud the Education Department for issuing guidance, but meaningful change will only come with the passage of legislation.

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