New Education Department Regulations Establish Financial Aid Offer Requirements

Today, the U.S. Department of Education released new regulations that will increase consumer information and protection for students and reduce the chances that taxpayer dollars go to poorly performing and predatory institutions. These new regulations come on the heels of strong Gainful Employment and financial value transparency rules that were finalized in September. Through these rules, the Department is taking important steps towards holding our higher education system accountable for student outcomes and taxpayer investment. The Department is also ensuring that families and taxpayers understand costs and outcomes.

This package of rules spans many topics from the administrative capability and financial responsibility of institutions, to the agreements entered into between institutions and the Department. Over the next few weeks, we will unpack these new regulations and provide ongoing analysis.

In this piece, we highlight important new requirements for financial aid offers—the first regulations in existence governing how institutions communicate cost and aid within financial aid packages. These requirements follow many of the recommendations made in a 2018 analysis by New America and uAspire that showed just how confusing financial aid offers are to navigate. The rules also codify some of the financial aid offer best practices listed in a recent report from the Government Accountability Office (GAO). With these new rules, the Department has gone as far as it can go to provide much needed transparency. It will be up to Congress to pass legislation that will further reform financial aid offers so that students and families can make apples-to-apples comparisons among all financial aid packages.

Figuring out how to pay for college is one of the biggest financial decisions people make in their lives. As part of the admissions and enrollment process, colleges provide accepted students with personalized information about how much school will cost and the federal, state, and institutional aid for which they are eligible. This information is provided in a variety of places, most commonly on financial aid offers (often misleadingly called “award letters”) sent directly to students. But this information also appears on student web portals, institutional websites, and in counseling sessions. There is very little consistency for how personalized higher education cost and aid information is communicated to students, leaving it up to the whims of institutions.

Unsurprisingly, this has led to confusion for students and families, particularly when it comes to financial aid offers. In our analysis with uAspire of over 500 different institutions’ financial aid offers, we found that there were 136 unique terms for the federal unsubsidized loan, including 24 that didn’t even include the word loan. A third of financial aid offers had no cost information listed, making it impossible to contextualize the offer. Seventy percent of letters grouped all aid together and provided no definitions to indicate to students how grants and scholarships, loans, and work-study all differ. Nearly 15 percent of letters included a Parent PLUS loan as an “award,” without clearly explaining that this is a parental loan with different terms and conditions. That PLUS loan was often used to “zero out” a financial aid package, making it seem like the student received a full ride to college.

Most recently, the GAO's report showed that over 91 percent of colleges either do not include or understate net price—the actual amount a student needs to pay after subtracting grant and scholarship aid—in their aid offers. No school followed all the best practices (some practices as simple as listing cost) established by the GAO. The GAO’s recommendation for fixing financial aid offers was to call on Congress to pass a bill like Understanding the True Cost of College Act—the longstanding bipartisan and bicameral bill that will require a minimum uniform framework for communicating financial aid packages. Unfortunately legislation often moves at a glacial pace and in absence of any requirements, students are harmed and institutions are able to obfuscate costs.

That all is about to change through new provisions within the administrative capability regulations. The Department has a responsibility to ensure the institutions participating in the federal student aid programs are administratively capable of properly and effectively supporting students and managing the financial aid flowing to their programs. As part of those requirements, the Department has revised its financial aid counseling requirements within administrative capability to make several common sense stipulations for how institutions communicate cost and aid within financial aid packages. Institutions will now have to communicate the full cost of attendance on their financial aid offers, separate each type of aid offered making clear what is a loan and what is a grant, include the net price, and the next steps a student must take to receive the aid.

While legislation is still needed to ensure all students can make apples-to-apples comparisons of their financial aid packages, these regulations are an important first step in protecting students. The absence of federal requirements meant there was no way to hold institutions accountable for poorly communicated (and sometimes downright misleading) financial aid offers. Now there is a powerful and meaningful avenue to make sure all financial aid offers are meeting a minimum standard.