The financial aid tool that the feds announced today

I've worked on some radio spots for MPR on the new financial reporting tool being touted by the federal by the Consumer Financial Protection Bureau, so I'll be putting out some coverage tomorrow morning.

(My original understanding was about right, though.)

Here's the write-up by the Associated Press:

The true cost of college may soon be easier to


The Consumer Financial Protection Bureau and Department of

Education on Tuesday announced a project to simplify the financial

aid award letters that colleges mail out to students each spring.

The goal is to help families compare costs of various schools more


As it stands, critics say colleges often obscure the inclusion

of student loans in financial aid packages to appear more


For example, the letters often highlight an "out-of-pocket

price" that subtracts the amount students would have to borrow to

bridge costs. Now federal officials want feedback from the public

on a "financial aid shopping sheet."

The draft version of the form, available at , makes clear distinctions between

scholarships and loans; it also includes key figures such as the

estimated monthly payment and total debt upon graduation.

"The stakes have never been higher for students and their

families to clearly understand the costs and risks of student

loans," said Raj Date, an official with the Consumer Financial

Protection Bureau. "Having a simple, one-page financial aid

shopping sheet would help students compare offers and choose the

one that's right for them."

A final version of the form, expected in coming months, could

also include the school's graduation and loan defaults rates.

The Department of Education was required to develop the model

form as part of the Higher Education Opportunity Act of 2008. The

adoption of the simplified forms would initially be voluntary, but

Congress could vote to make it mandatory for schools that receive

federal financial aid.

The push to standardize financial aid award letters comes at a

time when students are borrowing more than ever to keep up with

soaring tuitions. The Institute for College Access & Success

estimates that two-thirds of graduates have student loans, with an

average debt of about $24,000.

One reason for the ballooning debt loads is that students don't

always realize how much their loans will end up costing them.

That's partly the result of the "jargon-laden financial aid award

letters using inconsistent terms and calculations," federal

officials said in the release announcing the new initiative.

In testimony at an Education Department hearing on the matter

last month, financial aid expert Mark Kantrowitz noted that college

is one of the few major life expenses that do not come with

standardized disclosures about costs.

Kantrowitz, who publishes, noted that the financial

aid letters don't always distinguish between grants and loans and

often don't include basic information on loan terms, such as

interest rates.

Yet if a student took out $24,000 in student loans, the interest

charges alone would add up to $9,100 if repaid in 10 years. That's

assuming the favorable interest rate of 6.8 percent that federal

student loans carry; interest rates on private loans can be higher.

Making matters worse, critics say schools play an ambiguous role

in pushing student loans.

"The first financial adviser that a student runs into is a

financial aid officer at the college," said Anthony Ogorek,

financial adviser in Williamsville, N.Y. "Students needs to

understand that these officers don't have a fiduciary

responsibility to them."

Families have also been conditioned to believe that a college

education is an investment that will pay for itself, Ogorek said.

As a result families often take on huge debt loads without

questioning whether it makes sense financially. With many graduates

struggling to find work in the tight job market, the risk of taking

on big debt burdens is becoming a harsh reality.

The plan to simplify financial aid forms is modeled after the

approach that the Consumer Financial Protection Bureau took in

revamping mortgage disclosures. Earlier this year, the agency began

its "Know Before You Owe" project to simplify the paperwork

borrowers receive when applying for a mortgage. Critics say

improved disclosures could have helped prevent many of the past

problems surrounding the subprime mortgage crisis.

Before you keep reading ...

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