Lies in Your Financial Aid Letter? November 23, 2015

Ian Welham asks are there  “Lies in Your Financial Aid Letter?

Friends,

In the hierarchy of obfuscation, Mark Twain said, “There are lies, damned lies, and statistics.”

Clearly, Mr. Clemens didn’t know about college financial aid letters, which are currently arriving in the mailboxes of high school seniors. To say the least, thy can be tricky.

Of course they’re not supposed to be. Colleges are supposed to play nice and follow a government standard called the Financial Aid Shopping Sheet.

In short, the Financial Aid Shopping Sheet is designed to make crystal clear:

  • what’s a loan (money you have to repay with interest) vs. what’s a grant (free money you don’t have to pay back)
  • the actual amount you’re expected to pay out of your own pocket
  • when a grant or scholarship is for one year vs. all four years

Presently, the Financial Aid Shopping Sheet is voluntary. And fewer than one third of the nation’s colleges and universities have adopted it, reports The Washington Post.

Unless and until law requires all colleges to play by Financial Aid Shopping Sheet rules, I suggest you read your financial aid letters as if Snidely Whiplash wrote them. Perhaps you might want to wear protective clothing.

Here are some sleights of hand to watch out for:

Sticker Price Shenanigans – I’ve seen financial aid award letters that leave out important costs. Or their allowance for textbooks and/or transportation is unreasonably low. Make sure to triple check all numbers provided by the college. Some will try to focus your attention on the amount of aid you will be receiving. Certainly good information to know; but just as if you’re buying a house or a car, you want an accurate number for the total cost. Otherwise, how can you know how to properly budget, and even if the college is affordable?

Mixing Loans with Grants – A loan does not decrease college costs. It increases the total cost you will pay (due to interest payments). Therefore, it does not belong in the same category as grants and scholarships. By mixing in loans with grants and scholarships, colleges give the impression that the loan is reducing the family’s costs. Some readers might even believe the loan doesn’t require repayment at all. Well, it most certainly does (and it can’t be discharged like other loans). It’s my contention that all loans should be listed separately from “free money,” and loans should include their interest rates, fees and payment schedule. On 99% of financial aid award letters, you’ll see no reference to loans requiring payback or costing extra.

Nothing but Net – What’s the difference between “net cost” and “net price?” Could be thousands of dollars. Most financial aid letters calculate net cost, while what really matters is net price. Net cost is the difference between the total cost of attendance and the total financial aid package. But since the total financial aid package includes loans — which do not reduce college costs — your actual cost of college will often be much higher than the number listed on your award letter. Net price subtracts just the free money (grants, scholarships, etc.) from the cost of attendance. It more accurately reflects the amount a family has to use from savings, income, borrowing, etc., to pay the college bill.

Watch These Grants Disappear – A diamond may be forever, but a grant is not. Many schools provide a juicy aid package for freshman year, only to take it away in subsequent years (after your student is settled in on campus). Parents are shocked when they realize they’ve fallen victim to a bait-and-switch tactic. And according to The Washington Post, “about half of all colleges practice front-loading of grants.”

The Private Scholarship Gotcha – Here’s another thing colleges forget to disclose. If your student works hard to earn a private scholarship, the college will reduce your aid package by the amount of the scholarship. In other words, if you get a $2,000 scholarship from the Rotary Club, the college will take away $2,000 of aid they originally promised. They can choose to reduce loans, or they can choose to reduce grants. Option A: If the private scholarship replaces loans, this is a good thing; your net cost goes down. Sadly, this is not as common as Option B: If the private scholarship replaces free money from the college, your student is no better off for having earned a scholarship. The university, however, is thrilled because you’ve done them a tremendous favor. They can give “your” money to another student. And it’s my experience that the colleges don’t send a thank-you note.
Warmly,

Ian “The Professor” Welham
Certified College Funding Advisor
(973) 467-0101

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This post was written by admin on November 23, 2015
Posted Under: College Funding

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Ian R. Welham, Certified College Planning Advisor  -  Tel: 973.467.0101