The confusing and sometimes misleading financial aid letters that colleges send out this time of year can cause unsuspecting families to sign up for educations they can't afford, college experts warn.
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.
The Obama Administration tried to make comparisons easier by introducing the Financial Aid Shopping Sheet, a standardized format that highlights the net price of attending a school — the cost after subtracting free aid, such as grants and scholarships, but before any loans or work study are included.
But only about 2,000 schools use the shopping sheet, said financial aid expert Mark Kantrowitz, who publishes the education resource site Edvisors Network (www.edvisors.com).
"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."
Among the biggest problems families encounter:
1. Missing information about costs.
Some financial aid letters don't include any information about how much the school actually costs, while others furnish incomplete information — reporting just tuition and fees, for example. O'Shaughnessy recently saw a financial aid offer from a New York City school to a transfer student that did not include living costs in that notoriously expensive city.
"That's a huge omission," she said. Ideally, schools would provide estimated costs for tuition, fees, room, board, books, supplies and transportation, she said.
Families can find missing cost information at the College Board (bigfuture.collegeboard.org) or CollegeData (www.collegedata.com) websites. In addition, the Consumer Financial Protection Bureau's financial aid comparison tool offers links to cost information for many, but not all, schools (here).
2. Missing or misleading information about loans.
Many schools lump together gift aid that does not have to be repaid with loans that do, which can deceive families about the true cost of the education they are buying. Some award letters do not even clearly identify loans, using initials such as "L" or "LN" or simply referring to "Stafford" or "PLUS," the names of federal student loans.
"I am still hearing from parents who think an award letter with a $5,500 federal Stafford loan and a $20,000 federal parent PLUS loan is a free ride," Kantrowitz said.
Subtracting loans from gift aid gives families a better idea of how generous the college's financial aid package actually is, O'Shaughnessy said. For an estimate of how much the loans will ultimately cost to repay, families can use the CFPB's calculator, which projects the monthly payments.
Something else families should know: certain loans, including unsubsidized Staffords, PLUS loans for parents and private loans, are available to virtually everyone regardless of need. They're meant to help pay the family's contribution toward college costs. Yet some colleges present these options as if they're helping to meet the family's financial need, which is deceptive.
3. "Front loading" of free aid.
About half of all colleges "front load" their grants, so students receive more gift aid in their first year than they do in subsequent years, when the college typically switches out grants for loans. One way families can find out if future years will be more expensive is to simply ask the school, but not all colleges are upfront about this practice, Kantrowitz said.
A little sleuthing can help find an answer: check out the "money matters" tab for the school in question at CollegeData, and compare the "need fully met" and "average need met" for freshmen versus all underclassman, O'Shaughnessy suggested.
Higher figures for freshmen indicate the college front loads its grants.
4. Ignoring the gap.
Many schools don't offer enough financial aid, even with loans, to fully meet a student's need — a policy known as "gapping." But it might not be clear that this is what a college is doing, especially if the financial aid letter does not present complete cost information. To see if their need is being fully met, families have to subtract from the college's total cost their own "expected family contribution" — the amount they are expected to pay based on the Free Application for Federal Student Aid they filled out earlier in the year — and compare that to the aid offered.
That's a lot of research and math to do, but it's critical to make an informed decision, Kantrowitz said.
"Once the family has a final net price figure for each college, they can compare the college costs and financial aid on an apples-to-apples basis among the colleges," he said. "College affordability isn't the only criterion for choosing a college, but it is important that families be able to make an informed decision about the tradeoffs between financial fit, academic fit and extracurricular fit."
(The author is a Reuters columnist. The opinions expressed are her own.)