Senator Al Franken Introduces Legislation to Standardize Financial Aid Award Letters
May 28, 2012
Information about loans must be clearly labeled with the word “loan” and include the interest rates, fees and the expected monthly loan payments and total loan payments over the life of the loan assuming a 10-year repayment term. This is a subset of the information currently disclosed by private student loan programs under the Truth in Lending Act as amended by the Higher Education Opportunity Act of 2008.
Colleges must also disclose their outside scholarship policies and whether they practice front-loading of grants. These policies and practices can affect the net price. Some colleges allow outside scholarships to replace loans, reducing the net price. Other colleges displace their own grants when a student wins an outside scholarship, yielding no net financial gain to the student. Some colleges award a greater proportion of grants during the freshman year, yielding a lower net price than during subsequent years.
Colleges will be required to use standard names and definitions for referring to the various types of financial aid included in the financial aid award letter. This will make award letters easier to compare by ensuring that every college refers to the same awards in the same way instead of using obscure acronyms and abbreviations. This will also preclude the use of misleading terminology that characterizes loans as though they reduce college costs.
The standard format and design for financial aid award letters and the glossary will be developed by the US Department of Education and relevant federal agencies in consultation with students, students’ families, high school guidance counselors, postsecondary counselors, non-profit consumer groups and representatives of institutions of higher education. The draft designs will then be subjected to rigorous consumer testing, which will be used to refine the design of the standardized financial aid award letter.
Nothing in the proposed standard will preclude colleges from providing additional information to serve the unique needs of their students. Colleges may continue to deliver financial aid award letters in a variety print and electronic formats. The standard does not prevent colleges from innovating in ways that improve the design of financial aid award letters. The new mandatory standard simply establishes a common core to financial aid award letters, to ensure that financial aid award letters disclose clear, correct, complete and comparable information about college costs and financial aid.
Cosponsors of Senator Franken’s legislation include Senators Tom Harkin (D-IA), Chuck Grassley (R-IA), Richard Blumenthal (D-CT), Chuck Schumer (D-NY), Barbara Mikulski (D-MD), Tim Johnson (D-SD), Ron Wyden (D-OR), and Ben Cardin (D-MD).
The legislation is supported by the American Federation of Teachers, AFL-CIO, the National Consumers League, Campus Progress Action, the Institute for College Access and Success, Education Trust, and the National College Access Network.
Mark Kantrowitz is a nationally-recognized financial aid expert. He testified before the Advisory Committee on Student Financial Assistance in March 2011 and a U.S. Department of Education meeting in September 2011 about the need to standardize financial aid award letters. He has written articles about standardizing financial aid award letters for the Council on Law in Higher Education, Inside Higher Ed and Higher Ed Watch. Mark also wrote Fastweb’s Quick Reference Guide to Evaluating Financial Aid Award Letters and developed FinAid’s award letter comparison tool.