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Why your college financial aid letter may be misleading

The following article is from U.S. News & World Report

After receiving a college acceptance offer, the next step for many families is understanding their financial aid award – a vital letter that often contains information on aid, such as grants and scholarships, and the cost of attendance.

But for many high school seniors and their parents, it can be difficult interpreting these letters. That's because colleges don't always make it clear how much a student or family is expected to pay.

While many financial aid letters focus on aid award amounts, some fail to include indirect costs for attending college.

"Colleges don't always provide the full picture when it comes to the cost of attendance – COA – on financial aid award letters," says Abril Hunt, an outreach manager at Educational Credit Management Corporation, a nonprofit focused on helping families pay for college. "Many schools include standard tuition and fees, but some leave out indirect expenses – things like room and board, textbooks, meals and transportation.

While the Department of Education and the Consumer Financial Protection Bureau created a standardized form for financial aid offices called the Shopping Sheet, it's voluntary for colleges and universities to use. This standardized form is intended to make financial aid offers received from multiple schools easier for students to compare, but not all schools provide the Shopping Sheet; sometimes institutions only provide it to a certain group of students, such as veterans.

Last year, Republican Sen. Chuck Grassley of Iowa introduced the Understanding the True Cost of College Act of 2017 to provide greater transparency among financial aid letters. The act would require the Department of Education to develop a consumer-friendly financial aid offer form that institutions would be required to use.

"It's an important signal that students should have standardized information across different institutions types," says Colleen Campbell, associate director of postsecondary education at the Center for American Progress. The bill is still in the U.S. Senate, but higher education policy analysts don't expect it to be passed anytime soon.

Without standardization, financial aid letters are packed with technical jargon and abbreviations that even families with experience in financial matters can find confusing. Terms like "Unsub Loan" or "Fed Dir Unsub Loan" refer to the same thing – a direct federal unsubsidized loan.

For this reason, most award letters aren't useful for apples-to-apples comparisons, experts say. This makes it even harder for families to figure out which college they can afford.

In some instances, institutions even omit essential cost information.

A recent report by New America and uAspire analyzed 2016-2017 award letters from 515 colleges and universities and found that more than a third of institutions didn't include complete costs. Many letters didn't even include a bottom-line calculation; the study found more than half of the award letters didn't show what a student would pay.

For students and families who are trying to understand their college aid award letters, here are a few things to keep in mind.

Institutions often lump all types of aid together. Financial aid award letters often add all the aid together, mixing in grants, which don't need to be repaid, with loans. So it can be unclear to prospective students that they or their parents need to take out education loans to cover the cost of attendance.

"Be aware if student loans are listed, they might appear to reduce the total cost of attendance, but in reality, loans always need to be repaid with interest," Hunt says.

Rachel Fishman, one of the authors of the New America/uAspire report and deputy director for research with the education policy program at New America, says families should create a spreadsheet to scrutinize information from award letters. She recommends separating the different types of aid into different categories to understand a college's affordability.

Her instructions: "Make sure you're putting grants and scholarships into one category – essentially money that you won't have to pay back. The second thing: Remove the loans and understand those are the loans. Pull out work-study – work-study is a very different source of aid. And pull out parent PLUS loans because those are taken out by the parent, not the student."

Following these steps should help families understand the amount that doesn't need to be repaid and how much needs to be earned or borrowed.

Parent PLUS loans aren't part of a financial aid calculation. Experts say these loans shouldn't be included in considering how far your financial aid goes since these loans are credit-based.

There's an application process for parent PLUS loans, so these dollars aren't guaranteed. Parent PLUS loans also carry a higher interest rate compared with some private education loans and don't have the same borrower protections as federal undergraduate direct loans, such as flexible repayment options.

"Sometimes the institution will package [financial aid awards] with federal and sometimes state and institutional aid, and then will add on a parent PLUS loan to close their unmet need gap and will make it look like the student owes nothing. So that can be misleading – it leads students to think that they don't have any costs and that they're going to college for free. In actuality, they do have significant costs," Campbell says.

In fact, the New America/uAspire report found that among the award letters from more than 500 institutions to Pell-grant eligible students, nearly 15 percent of letters included parent PLUS loans appearing as an award; Pell grants are federal dollars given to students from low-income households.

One example from the report, reproduced above, was a 2016-2017 award letter from the University of Arizona. Under the summary of costs and financial aid in the letter, parent PLUS loans were referred to as "credit-based aid offered" and included in the calculations, which made it appear as though there was no net cost after aid.

Work-study can't be used to cover your immediate costs. This type of aid works differently than grants – it's money that must be earned through work-study employment.

"The money is really great for covering some of those indirect costs like your books – especially for your second semester. You can't count on that money to pay your bill when it arrives in August. You're going to have to get that money through a paycheck," Fishman says.

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