When you buy a house, you know the price and your monthly payment. The same with a car.
But when it comes to a college education, students often don't have a clear idea of what they'll end up paying or whether one school is offering a better aid package than another.
That's because there is no uniformity to financial aid award letters. Colleges use different terms and formats, making comparisons difficult. Schools don't always make a distinction between grants and loans or calculate the cost of college the same way. And letters often contain acronyms with no explanation.
Rich Williams, a higher education advocate with U.S. Public Interest Research Group, has reviewed award letters and recalls one that simply listed "$1,000 PHEAA." He says it wasn't clear whether that was a grant, a loan — or a foreign car.
It's no wonder 18-year-olds can end up making financial aid choices that come back to bite them years later.
When I have interviewed graduates struggling with steep education debt, they often say they didn't even know they had taken out high-cost private loans. They usually found out later when told they are ineligible for consumer-friendly repayment plans that are available only with federal loans.
With student loan debt exceeding $1 trillion and families increasingly questioning whether a college education is worth it, colleges should be embracing making financial aid award letters clear and uniform. Transparency may not solve the student debt problem, but it can help students and parents make better-informed decisions.
And it's what families — colleges' customers — want. Seven out of eight students and parents polled favor uniform award letters that are easy to understand and compare, according to a 2010 survey by FinAid.org, an online provider of aid information.
The Obama administration and members of Congress want it, too.
The Consumer Financial Protection Bureau and the Department of Education have been developing a one-page financial aid award letter that schools could use voluntarily.
The bureau posted a sample letter online last year and has been collecting public input. The letter breaks out the cost of attendance and clearly spells out grants and loans. It also discloses the graduation and loan default rates at the school plus a student's estimated monthly loan payments after graduation.
So far, more than 1,000 comments have come in. That feedback will be used by the Education Department to create a final version expected to be released in the fall.
The Obama administration already is lining up support. Earlier this month, the White House announced that 10 colleges and state systems — including the University System of Maryland — have backed the idea of providing key information about aid and college costs in an easy-to-understand format by next year.
"There is a lot of work to get the details right, but the concept is really an excellent one," says Maryland University system Chancellor William E. Kirwan. "It's one of those ideas you hear and you wonder, 'Why didn't you do this before?'"
It's unclear whether other colleges will follow, but eventually they may not have a choice.
Earlier this year, President Barack Obama signed an executive order that will require about 2,000 colleges participating in the Defense Department's tuition assistance program to use the CFPB's model letter when making aid awards to service members.
And last month, Minnesota Sen. Al Franken introduced a bill that would require colleges to issue uniform award letters and use the same terminology. Maryland Sens. Ben Cardin and Barbara Mikulski are co-sponsors.
Of course, some schools do a good job on award letters. "They are the exception to the rule," says Mark Kantrowitz, publisher of FinAid.org. He says he has reviewed hundreds of award letters over the years.
The most troubling letters blur the distinction between loans and grants. Some letters don't even use the word "loan," or designate a loan with the initial "L," Kantrowitz says.
That could lead students and parents to believe they are getting free money when they actually are taking on debt.