Hundreds of colleges agree to make financial aid offers more transparent

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There is a lot of variation in the financial aid letters colleges use to inform students of the cost of attending and the grants and loans that are available to them. The inconsistency can make it difficult for families to figure out how much they owe or to compare the cost of one college to another.

To remedy the problem, some 359 institutions – including university systems in California and New York – have agreed to standardize information in their financial aid offers to undergraduate students. The commitment, announced Tuesday, is a significant move toward transparency as families continue to question the price and value of higher education.

It was born out of the College Cost Transparency Initiative, a task force involving 10 higher education associations, to try to make financial aid letters more standard, clear and accurate. The group agreed schools must explain all types of aid offered using plain language. That way, for example, loans are unambiguously labeled as a loan and not mistaken for a grant.

Schools must also prominently display a breakdown of costs to be paid to the institution and the estimated net price – the amount of money a student would pay after grants and scholarships. If loans are included, schools must explain the terms, conditions and information about how much student loan debt may cost over time.

Education Secretary Miguel Cardona praised the initiative for providing the clarity students need to get an accurate picture of the cost of higher education. A federal Government Accountability Office report last year said many colleges do not follow best practices, such as itemizing costs, in producing their aid letters.

“Students and families need transparency, consistency, and clarity . . . so that they are able to make informed decisions about enrolling in and affording higher education,” Cardona said in a statement. “Unfortunately, financial aid offers are often confusing and, in some cases, misleading.”

Colleges have often customized their aid offers in a way they felt best served their student population, said Justin Draeger, president and chief executive of the National Association of Student Financial Aid Administrators, which is part of the coalition. But experts say that can make it difficult for families to weigh their options.

“We wanted to maintain some flexibility, but also educate around the idea that standardization was needed for specific elements so that students and families could all be working with the same terminology. And schools got that,” Draeger said.

He said not every aid offer from participating schools will look exactly the same, but all of the schools will be using the same standard definitions. That means the term “net price,” for instance, will mean the same thing in an offer from Pomona College in California as it does in one from Rutgers University in New Jersey.

Among the schools that have agreed to the standards are a host of community colleges, flagship, regional public and private institutions.

All 64 schools in the State University of New York system and the 25 schools in the City University of New York system have committed to the initiative. California State University, the nation’s largest four-year university system, has also signed on with the aim of helping first-generation, lower-income and adult learners navigate the cost of higher education, said Mildred Garcia, the incoming chancellor of the system.

“The benefit is that students will see what it costs and not be so afraid,” said Garcia, who currently serves as president of the American Association of State Colleges and Universities, a member of the coalition. “This is critical because it will show, yes, you have to pay a little [at CSU] but it’s not as much as some other places, and you’re still getting a quality education.”

The disparities in financial aid offers have long been a point of contention among higher education advocates and policymakers. In 2012, the Obama administration created a Financial Aid Shopping Sheet to encourage colleges to provide standardized information. However, the initiative did not gain much traction.

A 2022 GAO report recommended Congress consider legislation requiring colleges to provide students with clear and standard information in financial aid offers. The watchdog reviewed a sample of financial aid offers and found nearly two-thirds of colleges follow less than half of the 10 best practices the federal government recommends, such as itemizing direct and indirect costs. It also found that an estimated 91 percent of colleges do not include or understate the net price in their aid offers.

House Education Committee Chair Rep. Virginia Foxx (R-N.C.), who requested the GAO study, said the College Cost Transparency Initiative is “a big step in the right direction.”

“Getting the federal student loan program in check requires action from both lawmakers and postsecondary education institutions, and I’m glad to see we’re working together towards the same goal of greater transparency,” Foxx said in a statement.