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Can the CFPB Help Clear Up College Cost Confusion?

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college graduateAs though finding the money to pay for college weren’t difficult enough, trying to compare the costs of colleges and financial aid offers can be a daunting challenge for students and parents.

“Colleges are notorious for producing very confusing and/or misleading financial aid offers,” says Lynn O’Shaughnessy, author of The College Solution book and blog. “So people are at the mercy of colleges and they often don’t know if an award letter is a good one or not.”

O’Shaughnessy has featured several misleading financial aid offers on her site, pointing out shortcomings such as one school that failed to include living expenses – in New York City, no less – and another that included non-need-based-aid loans in its calculations, making it appear as though the school was providing more aid than it was.

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But that may change, thanks to initiatives by the Consumer Financial Protection Bureau (CFPB) to help students understand the cost of colleges they may be attending. The CFPB has released a new sample financial aid comparison shopper, and is soliciting public feedback. The tool estimates how much students will have to borrow based on average financial aid awards for the schools in their comprehensive database. Then it estimates the monthly payments based on a 10 year student loan. Check out the CFPB’s Financial Aid Comparison Shopper here.

I used it to evaluate the cost of two private schools my now middle-school daughter thinks she may want to attend someday.  I also included Harvard to see how it compared. Very quickly the tool made the calculation, and the results also included the average cost of a four-year private university and four-year in-state public university. While the latter was the least expensive option, it didn’t beat Harvard by much. For all schools, the estimated debt burden was “high.”

It was all more than a little scary.

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Students who have received actual financial aid offers can take the tool one step further and enter the amount of financial aid they have been awarded to get a more detailed comparison, including average graduation and retention rates as well as the average federal student loan default rate for each school they are checking out.

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“It’s a good tool with a few rough edges. For example, it would be better if the comparisons were side by side,” says FinAid.org’s Mark Kantrowitz. But that’s precisely the type of feedback the CFPB is soliciting in this beta release of the tool. FinAid offers a detailed award comparison tool that requires students to fill out all the information themselves.

O’Shaughnessy also observed that the CFPB tool only estimates costs based on one year of school, and she would like any tool that is adopted to include a calculation of total student loan debt and subsequent payments based on all four years of college. “A lot of people will think of these loans insolation,” she points out. “They don’t think about the other three years. What are the payments for those loans?”

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Beyond that, we think that CFPB might consider displaying total loan amounts and accrued interest over the life of the loan. The tool might also allow users to adjust the term of the loan with a slider, and recalculate the results.

In addition to the financial aid tool, earlier, the CFPB released a financial aid shopping sheet and asked for feedback, calling it an “example” and not a “proposal.” The Department of Education plans to develop a model form for presenting student aid offers.

Will the CFPB tool really be able to help parents and students understand what they are signing up for when they take on student loans? Try it out and let them (and us) know what you think.

Image: Terren in Virginia, via Flickr

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