How to decipher financial aid offers from colleges

It's closing in on the end of April, and that means for this year's high school seniors planning to attend college next fall it is time to make their final decision by the traditional May 1 deposit date. For those who didn't commit early to a campus, the acceptances (or rejections) have finally arrived, followed closely by perhaps the more important notice: the financial aid offer.

The fact the financial aid offer arrives so late in the college search process puts most students and their families at a disadvantage. Most students often have their hearts set on a particular campus. But unlike other major purchases in life - a home, a car - many families haven't learned exactly how much they will need to pay for college or how they might finance it until the offers from schools arrive.

In these final weeks, the sales rhetoric from colleges turns to coldblooded financial reality.

Deciphering financial aid letters is almost impossible. Schools use different formats and difficult-to-understand abbreviations. They might mix together loans and grants, blurring the lines between the two and creating confusion. The worst offenders suggest students are getting a great deal. Unlike when we buy a car or a house or sign up for a credit card, there are no standardized disclosure forms schools are required to hand out.

It's not for lack of trying. In 2011, the Consumer Financial Protection Bureau proposed a model "shopping sheet" for college financial-aid offers to help families better understand them. The draft included the student's costs in red and student aid in green, and also had a section that displayed the student's projected monthly payments after graduation.

But higher-education officials opposed the draft, and the final version released by the Education Department didn't include the projected monthly payment. In many ways it didn't matter anyway because using the standardized letter is voluntary, and only about half of colleges do so.

The financial-aid process is a complex maze confusing even to those of us who have covered the industry for decades. I can't imagine the plight of parents and students who are thrown into the labyrinth anew each year. Under pressure, families sometimes make bad financial decisions in these weeks after the aid offer arrives: students because they don't know any better and parents because they don't want to disappoint their sons and daughters.

Here's some advice.

• First, because many schools don't follow a similar format, take the time to translate the aid letters to a common spreadsheet. Separate loans, as well as the types of loans, from grants and scholarships to more easily compare the offers. "Some schools also use deceptive language to mask the difference between grants and loans," said Ethan Ris, an independent college counselor in San Francisco. "You didn't get 'awarded' a PLUS loan with a 6 percent interest rate. That's a burden you're taking on."

• Second, don't view the letter as a final offer. Ask questions, especially what the aid package might look like a year from now. About half of colleges practice what is known as "front-loading" - giving bigger grants to first-year students than everyone else-according to Mark Kantrowitz, a financial-aid expert and publisher and vice president of strategy at Cappex.com, a free website about admissions and financial aid.

The practice is a classic bait and switch. Colleges attract students with a bigger discount and a boatload of financial aid the first year, and then once the students like the campus and want to stay to actually finish their degree, they give the students less aid for their remaining years. It's just like what credit card companies or cable companies do to attract new customers - they offer an introductory rate followed by a big rate increase in year two or three.

To figure out if a college might be doing this, go to federal government's College Navigator website to look at the percentage of undergraduates receiving grants and the average grant amount for first-year students and all undergraduate students. If there's a significant difference, that is a sign that you should at least ask about front-loading.

If you call the campus about the financial-aid letter, Ris said it's important to remember that aid offers can be negotiated. "Like a salary, it's best to have a competing offer in hand, but even if you don't, it's still well worth a try," he said. He suggested first going to the financial-aid office, but if that doesn't work contact the admissions office. "Admissions officers have a huge interest in getting accepted students to campus," Ris said, "and they are frequently your best advocates in getting more financial aid."

• Third, don't forget the bachelor's degree takes four years to earn and most aid letters only lay out first-year costs. A college education might be the only product you buy where you don't know the full price upfront. Some schools have tried to point out to prospective students that while they might be the right academic and social fit, it's possible that they're not the right financial fit.

A few years ago, New York University called some 2,000 students right after they received their financial-aid offers. It focused on those who were first in their family to go to college or who had a big gap between what NYU offered and what the family was expected to pay. Officials encouraged the students to think twice about whether NYU was the best financial choice for them. The calls were discontinued after a year because they had almost no impact on decisions to enroll.

In the end, the financial aid letter has to be more than just one more piece of marketing that students get from a college, said Amy Glynn, vice president of financial aid and community initiatives at CampusLogic. "The award letter needs to come into this century," she said, "one that is dynamic, interactive, and customized."

CampusLogic works with the University of Arizona, Purdue University, Bowdoin College and dozens of other schools to provide automated and mobile financial aid notices to students.

One noteworthy innovation began at Indiana University, a program that sends students an annual letter updating them on how much they borrowed and what it will take to repay their loans. Glynn compared it to a credit card statement. Right now, many students don't know how much they are accumulating in debt through college because - unlike a credit card account - they don't get a monthly statement.

The Indiana program is now state law for all institutions there, and last month, U.S. Rep. Luke Messer, R-Ind., introduced a bill to require all colleges that accept federal aid to send a similar letter.

Given the recent experience of the Consumer Financial Protection Bureau's attempts at reforming the aid letter, it's likely some college officials will fight this effort, too. Colleges and universities benefit from confusion in the marketplace. It's in the interest of students and parents to change that balance and learn as much as possible about the school they are considering and the financial aid offer it's making.