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Whether President Joe Biden’s misguided plan to forgive some $400 billion in federal student-loan debt goes forward will ultimately be up to the Supreme Court. For now, there’s more the federal government should be doing to rein in the costs of higher education — and thus reduce how much students borrow in the first place.
In particular: It should insist that colleges stop hiding exactly how much students are expected to pay.
Federal law requires colleges to list the cost of tuition on their websites and in other promotional materials. Many schools also send admitted students award letters that calculate the net price they’ll owe after deducting various forms of financial aid, which can include merit scholarships, federal and state government-funded grants, and work-study programs.
In theory, students should be able to use this information to compare the costs of different institutions and decide which one best fits their budget. In practice, such letters are highly inconsistent, needlessly confusing and, in some cases, downright misleading.
A recent report by the Government Accountability Office found that in a sample of 204 schools, nearly 40% failed to inform students of the net price they’d have to pay. Half didn’t disclose the full cost of attendance — which includes expenses such as housing, meals, books, supplies and transportation — beyond tuition and fees.
Another 15% of colleges treated federal student loans as a form of financial aid, alongside grants and scholarships, neglecting to point out that those loans must be repaid with interest. The resulting price distortions can be extreme: The report cites one college’s award letter, informing a student of a net price of $351 per semester; once loans were factored in, the same student would be on the hook for more than $47,000 a year.
By concealing such costs, colleges encourage students to make choices their families can’t afford, increasing the chances they will drop out due to financial distress. The lack of transparency also makes it virtually impossible for consumers to make reliable cost comparisons. This harms competition and reduces incentives for colleges to keep their prices in check — causing borrowers to take out ever-larger loans and further exacerbating the overall debt burden. Despite attempts by the federal government to promote greater clarity and consistency, colleges have resisted pressure for reform. The Department of Education requires schools to send a common, standardized award letter to all military personnel and veterans seeking to enroll, but only 3% use the template for the general population. Higher-education interest groups have lobbied against having to use uniform financial-aid offers, arguing that government-mandated standardization would make it harder for schools to customize their offers to meet specific students’ needs.
A bill introduced in the House charts a sensible middle ground. It would prohibit the secretary of education from mandating a single, uniform award letter, but would tighten oversight of financial-aid offers, requiring that they estimate not only the cost of tuition but also indirect expenses such as books and supplies.
Schools would be banned from classifying federal student loans as a form of aid.
The bill also requires schools to supplement aid offers with information on the monthly earnings and loan payments of their graduates, which would enable prospective students to make more informed decisions about which school to attend. The runaway cost of college has saddled millions of Americans with student-loan debts they’re unlikely to fully pay back, depriving the government of revenue and harming taxpayers in the process. Requiring true transparency from colleges is a necessary step toward repairing a broken system.
— Bloomberg Opinion editorial board