(Bloomberg) -- Halid Hamadi was determined to get his bachelor’s degree from Penn State, even though he had less than $7,000 in financial aid and no support from his parents. He crunched the numbers and figured he could make it work — barely.
But the financial aid letter he received from the college failed to paint a complete picture. Hamadi didn’t realize the tuition cost he was quoted could change from year to year. He said it also wasn’t clear that some estimated costs of attendance, like on-campus housing, weren’t guaranteed, while other costs weren’t included at all. The end result? An unfinished degree and $120,000 in student debt.
“I worked hard to get into these schools. I didn’t want to short myself by not going because of finances,” said Hamadi, who is now 28 and still paying off his loans. “But the information about what college would actually cost to attend was withheld. It wasn’t as explicit as it should have been.”
For college applicants and their families, the two most nerve-wracking events are the day they find out if they got in and the day they find out if they can afford it. Calculating the price, though, isn’t always easy.
More than 90% of schools either understate the net price of attendance or don’t include it in financial aid letters, according to a report from the US Government Accountability Office. And when the letters aren’t clear, there’s not a lot of time to decipher them: Students who plan to start college in the fall must commit to a school by May 1.
Students who submit a Free Application for Federal Student Aid, better known as FAFSA, receive one from each college they’ve been accepted into if they are eligible for aid. They typically arrive in the spring and contain information on the costs of attendance and the various types of financial assistance available. In the 2020-21 application cycle, more than 17 million people submitted a FASFA.
But the information varies from school to school and in some cases, financial aid offers lump together grants, which don’t need to be repaid, with loans that do. Others don’t provide information on key costs like housing and books, or they may not disclose that aid levels will decline after the student’s first year. Nearly a quarter provide no information on college costs at all.
“Parents are realizing that financial aid offers are just advertising letters for the college,” said Mark Kantrowitz, a financial aid expert who’s written several books and testified before Congress. “Some are trying to convince you that you can afford to attend the school when you really can’t.”
Deciphering Financial Aid
After her daughter Lily was accepted to Vanderbilt University in Nashville, Tennessee, Nancy Green hired a financial aid consultant to understand the true price of the degree. Green was confused by the “merit aid” the school offered in its letter, and whether it would have to be repaid. Even with expert help, Green is still worried about hidden costs.
“There were no grants or loans or anything involved, it was just merit aid, which was a bizarre construct,” said Green. “What’s so distasteful is that we still don’t know how much we’re going to be paying at the end of this.”
Once families have worked through the confusing language, comparing offers from different schools poses yet another challenge. Even though college degrees may be one of the first and biggest investments a person will make, there’s no standardization across schools in how they present their financial aid packages, and experts say the process is like comparing apples to oranges.
Nearly a quarter of colleges don’t distinguish between the types of aid — like grants and loans — and 58% don’t label whether the source of the aid is federal, state, institutional or private, according to GAO. That makes it tough to understand what money needs to be repaid, what doesn’t, and what requirements must be met to ensure the aid keeps flowing. For financial aid expert Brendan Williams, the process is like “solving a puzzle.”
“When we have big transactions in our lives, like buying a house for example, there’s really explicit regulation about what that process needs to look like,” said Beth Akers, a senior fellow at the American Enterprise Institute, a conservative-leaning think tank. “We have standardization so that it becomes easier for consumers to understand what they’re doing. We haven't done that in education.”
Penn State didn’t have an immediate comment. Vanderbilt’s director of student financial aid and scholarships said in an interview that the school has tried to address these issues, including being transparent about college costs with families.
“It can be a very confusing process and we understand that,” said Brent Tener. “We spend a lot of time between when we release our decisions and May 1 talking to families and helping them walk through the process.”
Too Little, Too Late
In an attempt to improve transparency, the leaders of 10 higher-education associations announced in November that they’d formed a task force to develop standards for financial aid offers. The committee is set to meet in June, but hasn’t set a deadline to finalize the guidelines.
For some people, it’s too little, too late. Misleading aid offers have exacerbated the student loan crisis, with students taking out more loans to deal with unexpected costs. At the same time, the number of students who’ve dropped out of college without earning a credential grew 3.6% in 2021-22 from the prior academic year to 40.4 million people, according to the National Student Clearinghouse.
That includes Hamadi, who was forced to leave Penn State in 2016 after he was rejected multiple times for a private loan to pay his senior-year tuition. The Maryland native knew working a series of odd jobs, from making sandwiches at Subway to working security at local bars, wouldn’t be enough to pay off the $120,000 in private and federal loans he’d racked up.
In 2019, he enrolled in Merit America, a nonprofit aimed at helping those without college degrees get training for in-demand careers, and is now working as an integration engineer for a tech company in Washington, DC. While Hamadi still sees the value of a college education and hopes to finish his bachelor’s degree someday, he says it wasn’t worth the financial and personal stress.
“I really want that degree, but the cost is not worth all of that,” Hamadi said.
To contact the authors of this story:
Paulina Cachero in New York at [email protected]
Francesca Maglione in New York at [email protected]
