Student Loans

The Fuzzy Math in Financial Aid Offers


Salenia Shaw had to enlist the help of a college counselor to decode a financial aid letter from Bradley University

Photograph by Jennifer Silverberg for Bloomberg Businessweek

Salenia Shaw had to enlist the help of a college counselor to decode a financial aid letter from Bradley University

When Susan Romano first read her son Zach’s financial aid letter from Drexel University, a private college in Philadelphia, her eyes immediately jumped to the line highlighted in yellow: “$13,442 expected payment” for the first year at the $63,000-a-year school. “At first, I thought it was great,” says Romano, an insurance claims representative from Huntingdon, Pa. “The more I read it over and over, the worse it got.” It turned out the college’s “offered financial aid” included $42,000 in loans to be taken out by the family. “A loan to me is not financial aid,” says Romano. “It is money I have to pay.”

While the federal government requires banks and mortgage companies to disclose interest rates and total payments on loans, the financial aid letters sent out by colleges are often unclear about how much families will have to pay. The format for packages varies by school, making it difficult to comparison shop: Loans and grants offered by the federal government are lumped together with the school’s scholarships, and the statements often don’t include information on interest rates.

Daniel Jamrozik thought Butler University had made him a great offer—until he figured out his family would need to borrow $28,000 for his freshman yearJennifer Silverberg for Bloomberg BusinessweekDaniel Jamrozik thought Butler University had made him a great offer—until he figured out his family would need to borrow $28,000 for his freshman year

“You have to be savvy enough to know the fine print exists, and then you have to be eagle-eyed enough to find it hidden in the letters and on websites,” says Debbie Greenberg, a counselor with College Bound St. Louis, a nonprofit that coaches low-income students. Salenia Shaw, a high school senior Greenberg has been advising, was directed to a website for details of her aid package from Bradley University in Peoria, Ill. After subtracting grants from the cost to attend, they realized Shaw and her mother would need to take out $17,000 in loans for the first year.

The U.S. Department of Education, consumer groups, and guidance counselors are pushing for a standard format for award letters. The department is aiming to have a model ready before the start of the next school year, according to spokesman Justin Hamilton. Only Congress, however, has the power to make it mandatory. “Our hope is that institutions will see the wisdom and benefit of moving towards a common form,” Hamilton says.

The National Association of Student Financial Aid Administrators went to Capitol Hill in March to lobby against the standardization. While the group isn’t opposed to requiring schools to use the same terms, members prefer the flexibility to design their own letters, says Megan McClean, director of policy. “We are always in favor of students and families having clear and accurate information,” she says.

The Consumer Financial Protection Bureau introduced a website last month that helps students compare financial-aid options at different schools. “Clear financial aid information with estimates for total debt and monthly payment after graduation would help them make decisions,” said Rohit Chopra, its student-loan ombudsman, in an e-mail. Educational debt has ballooned to $1 trillion, surpassing the amount owed on credit cards in the U.S., according to estimates compiled by the agency.

Joan McDonald, senior vice president for enrollment management at Drexel, said in an e-mail that the college includes federally backed and private loans in financial aid letters so families have a complete view of available resources. David Pardieck, director of financial assistance at Bradley, says the university has not had complaints about the clarity of its letters.

Daniel Jamrozik, 18, the top-ranked student at his high school near St. Louis, needed help from a coach at College Bound to interpret his aid award letters. A letter from the public Missouri University of Science and Technology presented a 10-line breakdown with a boxed amount of $22,536 that corresponds to the total cost for one year of attendance. The package, though, required Jamrozik and his parents, who are Polish immigrants, to take out $12,586 in loans. His father is a contractor and his mother juggles several jobs, including as a nursing-home aide.

A letter from Butler University, a private college in Indianapolis where the total cost of attending for the 2012-13 academic year comes to $47,168, initially appeared to offer Jamrozik more money: The figure highlighted was $28,100. Yet after crunching some numbers, he and his coach determined the family would actually need to take out $28,000 in loans, more than double the amount for the state school. “It’s certainly not our intention for them to be confusing,” says Melissa Smurdon, director of financial aid at Butler. “There is a significant amount of information that needs to be conveyed.” Lynn Stichnote, director of student aid at Missouri S&T, acknowledges the letters can be “intimidating.”

Jamrozik, who has until mid-May to make his choice, says he’s certain about one thing: “You’re just going to be suffering for an eternity to pay off the debt.”

The bottom line: College financial aid officers oppose an effort to introduce a standardized letter for assistance awards.

Lorin is a reporter for Bloomberg News in New York.

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