Financial Aid—Shoot for the Moon

In what is being called landmark legislation, college loans must be converted from private lenders to the federal Direct Loan Program.

Campuses across the country are gearing up to meet the July 1 deadline to revamp student-loan programs, as required in the federal Health Care and Education Reconciliation Act of 2010.

Direct loans should be better for students. The fees banks had received to administer the loans can instead go to expanding Pell Grants. Furthermore, the lending relationship is more stable. The student loan will not be sold to another lender.

However, to call student loans “financial aid” is a bit of a misnomer. Nevertheless, the Free Application for Federal Student Aid (FAFSA) serves to qualify students for subsidized student loans. What high school guidance counselors know about, but we never see publicized are the lost opportunities to highly proficient and talented, but poor, students. Such students, after being accepted into a highly selective school, must await the financial aid award letter before deciding to to attend the school. Sometimes the financial aid package covers only half the cost. The aid package includes loans for both the student and the parents. The implication of the financial aid package is that it already includes the maximum loans for which they qualify. If students and parents are unable to borrow to make up the difference, then the student is effectively barred from attending the school to which they had been admitted.

The American Association of State Colleges and Universities (AASCU) documented the questionable practices of student loan lenders. A few years ago, Consumer Reports explained how some universities use insufficient financial aid to effectively nullify the academic acceptance of poor students. The practice has a name which I have forgotten and I have been unable to locate the original Consumer Reports article. Of course, colleges are not supposed to engage in such low-down tricks, but like any form of discrimination, it can be well nigh impossible to “prove.”

The institution a student attends is a track to future opportunities. It is not true that all a high-achieving low-income student has to do is get scholarships. If the financial aid package (scholarships, grants, loans, work-study) is insufficient, the low-income student loses access to opportunity. Frankly, loans are not financial aid, so it seems odd that students who do not qualify for financial aid do not qualify for student loans either. Students with no financial aid must go to the private loan market if they and/or their parents have insufficient funds.

But here's the thing: Many of the best schools are known for providing 100% financial aid. Harvard, for example, "guarantees to meet 100 percent of a student’s demonstrated financial need for all four college years based on information we receive from the family each year". So does the University of Southern California.

USC administers a robust financial aid program with a long tradition of meeting 100% of the USC-determined financial need for those undergraduate students who satisfy all eligibility requirements and deadlines.

Therefore, a high-achieving, low-income student might as well shoot for the moon, rather than economize at a school that is cheaper, but provides a lower percentage of financial aid.

Consumer Reports puts out a wonderful primer on financial aid that should be required reading for students and their parents.