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September 2007
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What you can do
- Tap federal loans first; everyone qualifies. Limit private loans; rates are higher. Don't finance college with credit cards.
For more information, you can download the full Consumers Union report (PDF file) Helping Families Finance College: Improved Student Loan Disclosures and Counseling
Families need clarity on financing college
Financing a house or a car can be confusing. But it's nothing compared with trying to finance a college education.
In college-loan documents, disclosures about rates and terms are often paltry. That's especially rough for the 17-year-olds who are poring over the paperwork with their parents and committing to years of payments.
Teenagers are among the least equipped to comprehend the implications of high debt. High school seniors recently surveyed about their understanding of financial basics by the JumpStart Coalition for Personal Financial Literacy scored, on average, just over 50 percent.
And yet, full-time students who borrow to pay for four years of college graduate with an average debt of almost $20,000. That's a result of skyrocketing college costs.
Students and parents should have access to understandable information at critical points in the financing process. The current system makes that nearly impossible. Colleges calculate the cost of attending in different ways, so comparisons are difficult. Financial aid award letters don't always make clear the difference between grants, which don't need to be repaid, and loans, which do. They also give little or no guidance on how to minimize loans, secure low-cost financing, or figure out the bottom-line cost of loans.
Lenders offering private loans contribute to the problem by failing to adequately disclose terms and rates, making it hard for families to comparison shop. Parents often don't get that information until they sign for the loan. And lenders aren't required to tell students about how high payments on a variable interest rate loan can balloon if their interest rate rises.
Research by Consumers Union, the nonprofit publisher of Consumer Reports, has found that students and their parents turn most often to a college's financial aid office for the ins and outs of paying for an education. But the information they get is often inconsistent and at times misleading. For example, some expensive colleges give enticingly large financial aid awards but hide the amount families must pay.
Recent investigations by New York's attorney general, Andrew M. Cuomo, and the Senate's Health, Education, Labor, and Pensions Committee have uncovered the fact that some financial aid officials have been taking kickbacks from private lenders and recommending lenders even if they are not the best choice for students.
Congress is now considering legislation to clean up college financing. Consumers Union thinks that it should:
Financing a house or a car can be confusing. But it's nothing compared with trying to finance a college education.
In college-loan documents, disclosures about rates and terms are often paltry. That's especially rough for the 17-year-olds who are poring over the paperwork with their parents and committing to years of payments.
Teenagers are among the least equipped to comprehend the implications of high debt. High school seniors recently surveyed about their understanding of financial basics by the JumpStart Coalition for Personal Financial Literacy scored, on average, just over 50 percent.
And yet, full-time students who borrow to pay for four years of college graduate with an average debt of almost $20,000. That's a result of skyrocketing college costs.
Students and parents should have access to understandable information at critical points in the financing process. The current system makes that nearly impossible. Colleges calculate the cost of attending in different ways, so comparisons are difficult. Financial aid award letters don't always make clear the difference between grants, which don't need to be repaid, and loans, which do. They also give little or no guidance on how to minimize loans, secure low-cost financing, or figure out the bottom-line cost of loans.
Lenders offering private loans contribute to the problem by failing to adequately disclose terms and rates, making it hard for families to comparison shop. Parents often don't get that information until they sign for the loan. And lenders aren't required to tell students about how high payments on a variable interest rate loan can balloon if their interest rate rises.
Research by Consumers Union, the nonprofit publisher of Consumer Reports, has found that students and their parents turn most often to a college's financial aid office for the ins and outs of paying for an education. But the information they get is often inconsistent and at times misleading. For example, some expensive colleges give enticingly large financial aid awards but hide the amount families must pay.
Recent investigations by New York's attorney general, Andrew M. Cuomo, and the Senate's Health, Education, Labor, and Pensions Committee have uncovered the fact that some financial aid officials have been taking kickbacks from private lenders and recommending lenders even if they are not the best choice for students.
Congress is now considering legislation to clean up college financing. Consumers Union thinks that it should:
- Require all colleges to use the same definitions and formats in awards letters to disclose the costs of attendance, the financial
aid awarded, and the implications of using various loans.
- Require private lenders to provide--in plain language--the rates, terms, and conditions of a loan at the time it's approved
rather than at closing, when it's too late to compare options.
- Require students to receive financial aid counseling before they get their loan checks. This would give them a chance to change
their spending and borrowing habits (or even their college) when it could make a difference to their future debt burden.
