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Increase Transparency for Students & Families

Increase Financial Aid Award Letter Transparency

Recommendation: Ensure that students and families have transparent, clear, and actionable

information available to them as they make one of the largest financial decisions of their lives.

Implement the recommendations outlined by uAspire and New America in their June 2018 policy paper, “Decoding the Cost of College: The Case for Transparent Financial Aid Award Letters.”

These recommendations include:

  • Require a Written Financial Aid Offer to All Qualified Students
  • Employ Standardized Terms and Student-Friendly Definitions
  • Include Cost of Attendance with Breakdown of Direct Costs and Indirect Expenses
  • List Gift Aid and Loans Separately
  • Do Not Include Parent PLUS Loans and Work-Study as Line Items in Aid Offers
  • Calculate the Student’s Net Cost and Estimated Bill
  • Identify Critical Next Steps for Student/Family

Rationale: Two recent reports offer compelling cases for overhauling financial aid award letter practices.

uAspire and New America conducted a thorough qualitative review using a subset of 515 award letters from unique institutions and found “not only that financial aid is insufficient to cover the cost of college for many students, but also that award letters lack consistency and transparency.”

Of the 515 letters, “more than one-third did not include any cost information with which to contextualize the financial aid offered.”

In a similar study, The Institute for College Access and Success “examined almost 200 award letters from public and private nonprofit colleges and found that the vast majority

fell far short of effectively communicating critical information to prospective students.”

Strengthen Credit Requirements in the Parent PLUS Program; Increase Student Borrowing Caps

Recommendation: Increase the credit criteria requirements Parent PLUS; for a parent who does not qualify for a Parent PLUS Loan, EFC recommends that the student’s borrowing cap be increased to fill the gap that the Parent PLUS Loan would have filled. Additionally, EFC recommends that the federal government significantly increase grant aid for students from low-income families and fund proven outreach programs at the local level that counsel families and students on borrowing.

Rationale: Rather than saddle low-income families — and, in particular, parents — with loans they are unlikely to be able to repay, EFC recommends that the federal government increase the credit criteria required for Parent PLUS Loans. If a parent does not meet the credit criteria for a Parent PLUS Loan, then the student’s borrowing cap should be increased.

Under this policy, the debt will be the responsibility of the student — the expected beneficiary of the education and the predicted increased income that accompanies it — and the student will have the flexibility to repay the loan under either standard or income-based repayment. The parent will not bear the burden of the debt and the negative consequences of potential delinquency or default.

To accompany this increased student borrowing limit, the federal government should also invest in increase grant funding, as well as robust outreach and support services programs to support low-income students through college. To provide these services, the federal government should look to leverage — through federal funding — the existing infrastructure provided by schools and nonprofits, including EFC members.

Modify Preferred Lender List Statute

Recommendation: Amend the Preferred Lender List (PLL) statute to allow schools the ability to recommend to students and families loans offered through nonprofit and state-based organizations, without the onerous procedures.

Rationale: The Higher Education Act currently requires postsecondary institutions to follow onerous procedures before they can provide information or guidance to students and parents on non-federal loan options. However, due to competing administrative needs, few postsecondary institutions have allocated the time and resources to complete the process.

Nonprofit and state-based student loan organizations offer loans utilizing state funding or tax-exempt bond financing, which in many cases enables the organizations to offer loans at lower costs than other programs. If schools do not create a Preferred Lender List, school personnel are restricted from advising students on non-federal loan options, including nonprofit and state-based student loans that are less costly than other programs.

By way of example, in Alaska, families without strong credit histories are borrowing from private lenders at rates that can be more than double the rates offered by the Alaska Commission on Postsecondary Education (ACPE), a state agency whose mission is to offer low-cost, consumer-friendly loans to Alaska students and families.

ACPE’s lowest fixed-rate loan (4.93 percent APR) is lower than the lowest fixed rates offered by Sallie Mae, Wells Fargo, and Discover. ACPE’s highest fixed-rate loan (7.93 percent APR) is significantly lower than the highest rates offered by those private lenders (11.26 percent, 11.85 percent, and 13.99 percent APRs, respectively).

However, because many Alaska schools lack the bandwidth to create a Preferred Lender List, Alaska families are unaware of lower-cost options available to them and instead rely on internet searches — dominated by for-profit lenders — to find supplemental funding options.

Require the Disclosure of APR for Federal Student Loans

Recommendation: Require the disclosure of annual percentage rates (APR) applicable to federal student loans, especially federal PLUS loans. EFC endorses the Transparency In Student Lending Act.

Rationale: The federal government, as the originator of more than 90 percent of all education loans in the nation, should be required to provide a more complete picture of the costs of these loans so students and families can make fully informed higher education financing decisions.

The federal government is currently not subject to the same disclosure requirements as private lenders, and, as a result, consumers are often unaware of the total expense associated with a federal student loan, including origination fees and the potential effects of deferment, forbearance, and interest capitalization on the total cost of their loan.

Ensure Appropriate Borrowing Amounts for Non-Federal Loans

Recommendation: Provide higher education institutions with the authority to reduce loan limits for certain borrowers and require all non-federal education loans to be certified by a higher education institution official.

Rationale: In order to prevent overborrowing, EFC supports providing higher education institutions with the authority to reduce loan limits for certain borrowers; even if a borrower is eligible to borrow a certain amount from the federal loan program, it does not always make sense for them to do so. Providing institutions with the authority to further limit borrowing will help to minimize overborrowing.

Additionally, EFC supports requiring all non-federal education loans to be certified by a higher education institution official. Requiring school certification will ensure that nobody borrows more than the cost of attendance less other aid from non-federal education loan programs.