College Financial Aid Letters Just Got a Little Better (to Read, Anyway)

Starting this spring. it should be a little easier to figure out exactly how much you owe your college.

For the first time, all college financial aid offices are supposed to follow some basic rules for providing undergraduates and their parents with information about their costs and financial aid.

A code of conduct adopted by the National Association of Student Financial Aid Administrators, the professional organization for staffers in college financial aid offices, now requires members to provide financial aid notifications that use standard terms and provide basic facts, such as costs and the rules for renewing grants in future years. The code was adopted last July, so this is the first admissions season that it has been in force.

College advisers and financial aid experts hailed the move as an improvement for consumers who are often confused or misled by jargon-filled financial aid award letters that don't clearly distinguish, for example, scholarships from loans. But the experts warned that the code’s limited scope and voluntary nature meant that it would not guarantee all families would get all of the pricing information they need to choose the most affordable college, or to budget wisely.

In addition, some college aid officials said that because financial aid has become so complicated—some schools have hundreds of different kinds of scholarships—it will be impossible for many of them to provide all of the required information in one easy-to-read letter.

(Here's a video showing how to decode confusing financial aid letters.)

“While having some requirements for award letters is better than having none, the NASFAA code of conduct requirements don't go far enough,” says Mark Kantrowitz, a financial aid researcher and publisher of Cappex.com.

Ben Miller, senior director for postsecondary education at the Center for American Progress, says that perhaps the best part of the new rules is also the simplest. He says getting colleges to agree to use the same terminology to describe each kind of aid is “immensely helpful.” For example, students and parents were often confused when one college’s award letter would say the student received a Stafford loan, while another would say the student received a direct federal loan—different names for the same thing.

But Kantrowitz and other experts say that other aspects of the new rules fail to address other causes of confusion. For example, Kantrowitz notes that the new rules don’t require colleges to provide each student with a standard, easily comparable, net cost of attendance. The net cost is the total price of attendance (tuition, fees, room, board, books, travel, and other miscellaneous costs) minus only grants and scholarships. Net price information has become crucial for families because more than half of all undergraduates now get scholarships and pay a net price that is lower than their college's official published "sticker price."

The new NASFAA rules allow colleges to continue to issue award letters that can make it appear that parent loans, for example, reduce the family’s net costs, Kantrowitz notes. Loans do reduce the amount of money that families have to pay the college up front. But instead of reducing the net cost to the family, loans simply change the time when the family pays that cost, since they eventually have to be repaid—typically with interest.

In addition, some college aid officials said they simply can’t provide all of the specifics called for by the new code. Kim Donat, director of financial aid at the University of Wisconsin Oshkosh, says that while students do need to understand the renewal terms of each scholarship, his office can't provide those details in a one- or two-page financial aid letter. His university’s foundation, departments, clubs, and other divisions award hundreds of different scholarships each year directly, he notes. His office only reports those awards to students, but doesn’t collect the renewal requirements from each department for each of the scholarships. The students who apply for those scholarships can get that information directly from the department that awarded them, he said.

Finally, the experts worry that the lack of strict penalties for violating the rules will mean that many colleges will simply ignore them, just as many have ignored the voluntary federal financial aid shopping sheet template launched in 2011. The U.S. Department of Education has urged colleges to use that standard award letter format so students can understand and easily compare their full college net costs. In fact, about 2,500 of the nation's more than 4,700 colleges have voluntarily adopted the federal standard award format for all students. But the rest of the schools—including such well-known universities as American University in Washington, D.C., Loyola University of Chicago, and Ohio University—either provide the standardized letter only to veterans or don't provide it at all.

The new rules “point financial aid offices in the right direction,” says Stephen Sullivan, spokesman for uAspire, a nonprofit college counseling agency based in Boston. But, he adds, “We have in the past seen similar efforts at standardization fail to live up to their promise due to a lack of incentive for compliance or adoption, for example, with the federal shopping sheet.”

NASFAA Policy Director Megan McClean Coval says she believes the new code will be adopted by the vast majority of colleges "since it really stemmed from the membership itself." NASFAA members view the new code as an improvement over the federal standardized letter because the code is more flexible, Coval says. Unlike the federal shopping sheet, the NASFAA rules give college officials the opportunity to distinguish between direct costs (money owed the college) and indirect costs (money students need to set aside for books, travel, etc.), she says. The new rules also give colleges an opportunity to send a letter that, for example, highlights special “named” scholarships that students might have won, such as a scholarship named after a generous alumnus.

If students or parents receive a letter they feel doesn't meet the code, Coval says they can report their concern to NASFAA "and we will work with a school to educate them and get into compliance. Schools that willingly resist complying with our member-created code of conduct would be subject to sanctions and possibly removal of NASFAA membership."

Anyone with a question about the new code can email ethics@nasfaa.org. You can also send an anonymous complaint to NASFAA.

“We think we’ve reached a good compromise,” Coval says. “Given the diversity of the higher education system, we needed to have some flexibility so schools could cater their award letters to their unique populations.”

(Have you received a college financial aid letter that seems confusing or misleading? Snap a picture of it and email it to us at college@moneymail.com. Feel free to block out your name or any other identifying information. We just want to see the way the college formats the letter.)

*This story was updated 3/16/16 to correct the name of Ohio University.