Last month, I wondered whether college is worth it (answer: yes). Now with acceptances out, a new question has emerged: Why are college financial award letters so inscrutable?
These letters are not only be confusing, but also misleading. For answers, I turned to Kelly Peeler, the founder and CEO of Money-Mentor.com, formerly NextGenVest and now a division of education lender, Commonbond.
Peeler created a service that provides high school and college students with the help they need to navigate the financial aid, scholarship, and student loan process by connecting them with Money Mentors over text message. After reviewing one student's recent "reward packages" from three universities, it is clear that we may need more than mentors to understand what is going on.
The first problem, according to Peeler: "There is no standard form that colleges and universities use to present financial information to students and their families." For example, one school listed the following under the broad category called "Award" for the first two semesters:
Federal Direct Loan Subsidized: $3500
Federal Direct Loan Unsubsidized: $2000
"Your remaining direct cost is $13,376," which along with the money outlined above it, means that the estimated direct costs for this student for one year of college total $40,480 of tuition and fees of $1,896.
In paragraph form, the school adds this: "Your personal indirect (emphasis mine) costs include room of $4,470, board of $3,152, books and supplies of $1,230, transportation of $2,860, and miscellaneous expenses of $2,856." There is no total for these costs, but they tack on another $14,388 for the first year, which in addition to the direct costs, mean that year one at this school will cost the family $56,764, but that number is nowhere to be found on the letter itself.
Here are some more critical pieces of information missing from the letter: Nowhere is there a warning that the numbers being tossed around are for the first year only. Sure, there is a breakdown by each semester, but many families erroneously believe that these dollars will flow not just for freshman year, but also for the following three years that it will take to complete a degree.
Each year of college requires another round of financial aid applications, which could mean less money available for the student via grants and scholarships, versus loans.
Did you notice anything funny about those loan amounts? How about the fact that they don't mention any specific (or even vague) terms -- no interest rates, no length of time the loan will be in place and not even a whiff of a projected future payment amount upon graduation. We are talking about tens of thousands of dollars in student loans (and potentially parent loans too) and there are no details about any of it.
In other areas of financial services, we demand specificity, but not when it comes to the millions of students who attend college. Securities, banking and insurance regulators require institutions to adhere to rule and standards of conduct rules that promote consumer protection. While hundred-page disclosure documents are not ideal, neither is the college one-page letter outline that can be complex and confusing for families.
The amount of outstanding student loans has more than doubled over the past decade. Part of that explosion has to do with tuition, fees and costs growing faster than the rate of inflation. But it's clear that another factor is that many families had no way of discerning exactly what they were signing up for in the first place.
(Jill Schlesinger, CFP, is a CBS News Business Analyst)