On Wednesday, April 29, Senator Bill Cassidy (R-LA), Chairman of the Health, Education, Labor, and Pensions (HELP) Committee, and Senator Chuck Grassley (R-IA), introduced the Improving Financial Aid Offers for Students Act. The legislation, which sets standardized terminology and definitions for student aid offers, is the latest addition to a growing number of bills aimed at improving price transparency for students and families.
The National College Attainment Network (NCAN) and our members know that the lack of clarity and consistency in financial aid offers can pose significant barriers for students – especially those first in their families to attend college – who may be unable to absorb unexpected costs. By requiring standardized terminology and definitions, the Improving Financial Aid Offers for Students Act takes a step forward in helping students and families understand which sources of funding are grants, which are loans that will need to be paid back, and which assumptions are used by institutions to estimate indirect costs.
We also know there is more work to be done to provide students with a comprehensive understanding of the true cost of attaining a degree. Read on for NCAN’s key takeaways.
Standardized Terms and Definitions
The bill requires the US Secretary of Education, in collaboration with relevant stakeholders, to establish standardized terms and definitions for key components of financial aid offer letters. The legislation also requires that institutions awarding Title IV aid use those standardized terms in their offer letters. The bill does not require a mandatory aid offer form – colleges and universities have some flexibility to design their own forms, but must include the standardized terms and required disclosures and follow guidelines for consistent font, labeling, and order for certain key components. These items include:
- Cost information: Estimated Cost of Attendance (COA) and the relevant academic period and enrollment status for the estimate, including,
- Direct costs: Tuition and fees and room and board (if institutionally required)
- Indirect costs: Housing and food (for students living off campus), books, supplies, other course materials, a computer, and transportation, including information about how institutions estimate indirect costs and a disclosure that the estimates may vary from what a student actually pays
- Grants and scholarships: Federal, state, and institutional grants, and outside scholarships, if known, with information about the renewal process
- Net price: COA minus grants and scholarships
- Loans: Federal subsidized and unsubsidized distinctions, clearly labeled as “loans,” including disclosures about repayment and interest rates, and recommend borrowing amounts
- Process for accepting, adjusting, or declining aid, and next steps
- Federal Work Study: The bill includes Federal Work Study in the optional elements of aid offers, and requires that if included, institutions must disclose to students the maximum amount a student may earn, and that these earnings are subject to the availability of qualified employment opportunities upon enrollment
The bill directs institutions to use plain language whenever possible and requires that the Secretary engage in consumer testing with students, families, and other relevant parties. Once determined, financial aid processing systems will incorporate the standardized terms, definitions, and formatting elements, so they can be implemented at scale. The requirement for standardized and consistent terminology will reduce institution-specific definitions, helping students and families to more accurately compare their financial aid offers.
Indirect Cost Estimates
As costs of living rise across the country, indirect costs can pose the biggest question for students trying to determine what they will be required to pay to live off campus. NCAN has advocated for standardizing the formulas and data that colleges use to produce estimates for indirect costs, such as housing, food, transportation, and childcare. Senator Cassidy’s bill requires that offer letters “include an explanation of how the indirect costs included in the financial aid offer…are estimated, and a disclosure that the student’s actual costs for these items may differ from the estimated costs.”
This provision will shine light on the assumptions colleges use to determine cost estimates for housing, food, transportation, and textbooks and supplies not included in tuition. However, to further strengthen this bill, NCAN recommends the federal government set a standardized formula and data sources for calculating these estimates, so that students can make true apples-to-apples comparisons.
Federal Direct PLUS and Private Loans
The new legislation also includes several provisions about PLUS and private loans that may shift current practice. In a section on optional additions to an offer letter, the text states that institutions can disclose that Federal Direct PLUS Loans and private loans may be available to cover remaining financial need. While the bill prohibits institutions from including a suggested amount total for these loan types in the initial offer, they may be included on revised versions of an offer letter, after they have been “requested by the student or parent and approved or certified.” The bill requires that the institution disclose that these resources will be subject to additional application processes, must be repaid, and that students should consider available federal student loans first, given that they “offer more flexible repayment and forgiveness options” than private loans.
It is not typical for PLUS and private loans to be listed in an initial aid offer letter. Allowing institutions to include this information may increase likelihood that students consider borrowing private loans to cover the cost of attendance. That said, given the new limits for federal students loans which will be implemented this year, it is likely that students will already be driven to the private loan market.
What’s Next?
College cost and value transparency is hot topic in the federal policy space. In addition to the Improving Financial Aid Offers for Students Act, Senators Grassley and Tina Smith (D-MN) had previously introduced the Understanding the True Cost of College Act, which proposes a mandatory form, as well and standardized terms and definitions, for all financial aid offer letters. The House of Representatives also marked up two transparency bills in the fall – the Student Financial Clarity Act and the College Financial Aid Clarity Act. It remains to be seen how the Chambers will move forward on the many efforts to address and improve cost transparency. We’ll keep you up to date as bills advance.