President Barack Obama's administration has asked colleges to begin using a new standard financial aid offer letter in the 2013-14 academic year to help families compare how much each institution costs.
The voluntary Financial Aid Shopping Sheet will outline the total estimate of tuition, fees and other costs, the institution's rates of completion and default, and a student's potential monthly loan payment after graduation.
About 10 universities have agreed to provide this information to incoming students, according to Education Secretary Arne Duncan.
“Families choosing a college should have clear and comparable information in a common format to guide their choice,” he wrote in a letter to college presidents last Tuesday.
The finalized proposal, released by the White House last Tuesday after a draft was posted in April, is an attempt to help educate students and their parents about the differences between grants and loans. It is also intended to provide specific information about the overall debt burden that a graduate would face — and how the tab would differ among schools.
$1T IN STUDENT DEBT
The Consumer Financial Protection Bureau estimates outstanding student loan debt for U.S. households at about $1 trillion, more than what is owed on credit cards or cars. In a report last week based on data from lenders and other sources, the agency estimated that students owe $864 billion in federal loans and about $150 billion to private lenders.
Financial advisers typically recommend that clients consider federal loans before private student loans. Federal loans are advantageous because the government pays the interest while the student is still in school, borrowers can receive income-based repayment options, and loans are canceled in the case of death.
Default rates of private student loans spiked following the 2008 financial crisis, and students are in default on more than $8.1 billion, representing 850,000 distinct loans, according to the report.
A Senate Banking subcommittee held a hearing last Tuesday at which the report's assertion that private student loans often lack repayment flexibility was discussed. The administration argues that debt from private student loans should be easier to dispel in bankruptcy.
Many borrowers who are making monthly payments can't get their private lenders to agree to better repayment terms, even though interest rates are historically low, Rohit Chopra, student loan ombudsman for the CFPB, said in written testimony.
“Policymakers have paid significant attention to the refinancing and modification conditions in the mortgage market,” he said. “But given the potential impact of student debt on the broader economy, the situation is rapidly demonstrating the need for attention to determine whether action is needed.”
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