November 09, 2009, 04:00 PM ET

Reforming the Financial-Aid Program, Part 1

We have spent a great deal of time over the last decade -- and certainly during the last year -- discussing the federal student-loan programs from the perspective of the cost of the program to taxpayers. However, we have failed to concentrate on the truly pressing issues that are most significant to students and families, including the overall level of indebtedness that recent and future graduates will face and the fact that despite increased loan limits (particularly in unsubsidized student loans), many students remain unable to pay the costs of higher education without relying on other, even more burdensome, lending vehicles.

I think the main problem with the student loan program is that we allow institutions, financial aid officers, and the federal government to euphemistically refer to student loans using terms that, in the minds of many students and families, connote reduced financial liability. For most students and parents, the term "financial aid" means a grant, scholarship or tuition discount that will reduce the overall cost of attending a college or university. Some are shocked to learn that the primary form of "aid" offered is nothing more than an invitation to take out a loan that shifts an even greater burden to students and families.

We don't call a mortgage housing aid, and we don't call a car loan auto aid, so why do we call a student loan financial aid? Student loans certainly increase access to higher education, and in that regard are a necessary and worthy means to an end, but we must be honest about the fact that student loans significantly increase the cost of higher education, and for some students, create a burden that might negate at least some of the benefits attributed to earning a higher education in the first place.

I am not advocating that we end the student-loan programs. I was in medical school when the federal government suspended the HEAL loan program, which effectively ended my medical-school career, so I am painfully aware of the importance of the federal loan programs. But I do believe that we should use the term "aid" to refer only to grant or scholarship assistance that reduces the cost of attending a college or university. Loans should be put into a different category -- one that is honest about the total cost of higher education once interest and fees are included.

Perhaps one way to assist students and families improve their decision-making abilities would be to establish regional financial education centers where impartial advisers could explain to students the risks and benefits of the loan options that are available to them; where counselors could help students and parents decipher the small print in promissory notes and make sense of the seemingly endless stream of letters that come from lenders or the Department of Education with regard to student loans; where unbiased professionals would remind students of the cumulative monthly payment that will result not just from the new loan they are taking now, but the sum total of all of the loans on which they will depend; and where financial experts would be required to show students just how much they will pay for their college degree once interest and fees are included -- which tends to put the total far above the "sticker price" we frequently are told that few students actually pay.

Student loans are, in many ways, the most worthwhile borrowing any of us will ever do, but I question the ability of an 18-year-old who has been wowed by an admissions tour and the promise of having just the right bumper sticker on the back of the family care to make a wise judgment that carefully weighs the advantages and disadvantages of borrowing money versus potentially shopping for a better value.

Comments

1. dcrabtree - November 10, 2009 at 09:14 am

No, we don't call a mortgage "housing aid," but that's what it is. Not many of us could buy a house without it. As a high school counselor, I talk with my students and parents about financial aid -- gift aid (grants, scholarships) and self-help (loans, work-study). It is important to borrow responsibly, but all these forms of aid can potentially enable a student to attend the college of his/her choice. "Aid" is an accurate descriptor.

2. livefreeordie2 - November 10, 2009 at 09:50 am

Okay. "Regional Financial Aid Centers" staffed by "impartial advisors." Uh. . . sorry. Your used the passive voice. Just who, exactly, is going to establish these Centers? The Federal government? State governments? Consortia of higher ed institutions? Or perhaps you think this can be done for free - done by generous unbiased professional volunteers to serve the greater good of talking students into or out of taking loans to further their education.

Your assumption that parents and students are just too stupid to figure this out with the help already available to them is almost offensive. The notion that what is needed to solve this "problem" is yet another costly layer of "advisers," whether funded by the government or institutions, is silly.

3. rlb68 - November 10, 2009 at 11:16 am

We don't call mortgages and car loans financial aid because the house or the car secure the loan and the lender can repossess them should the borrower default. A lender cannot repossess education should the borrower default. That is why it is called financial aid. The lender is aiding the student with their financial problem even though there is nothing to secure the loan. The lender is depending on the character of the borrower for the repayment of the debt. Unfortunately, many borrowers are showing their lack of character.

4. studfinsvcs - November 10, 2009 at 12:33 pm

What does the author think financial aid offices are if not "advisers to explain the risks and benefits of loan options; where counselors could help students and parents decipher the small print in promissory notes and make sense of the seemingly endless stream of letters that come from lenders or the Department of Education with regard to student loans; where unbiased professionals would remind students of the cumulative monthly payment that will result not just from the new loan they are taking now, but the sum total of all of the loans on which they will depend; and where financial experts would be required to show students just how much they will pay for their college degree"? Certainly in my 30 plus years in the profession that is what I have seen my role to be. None of us like the huge debt students rack up, and we all try to assist them in both finding other funding, and in understanding what they are getting into.

5. rwoodland - November 12, 2009 at 05:26 pm

Perhaps this should be published in "Brainfreeze". If I recall, when HEAl was suspended, great efforts were made to find alternatives for students caught in the middle. As a longtime financial aid professional, this kind of article is just so tiring and misleading. Everyone is an expert. I guess the massive amount of loan counselling and disclosure statements, monthly updates, on-line access can only be improved with a kiosk at the mall staffed with a 19 year old next to the sun glass pagoda.

6. tbennett27 - November 16, 2009 at 10:42 am

Personally, I really appreciate the author's perspective on Financial Aid. As a minority, first generation college student, I realize that many people are not well-informed about the risk of student loans. Also, many students take student loans with the anticipation of getting a good job to repay them, but, more often that not, right out of college that doesn't happen. Then, students are trying hard to get established and develop some sense of financial stability. Student loan payments may not be a priority in relation to finding a job, maintaining a roof over their heads and food on their tables. --No offense to the financial aid officers, but, a lot students will say that is the office that they hate to go to because they don't always get the help that they need. College funding is a very complex situation and it does require students to become savvy with all the terminology. Also, in terms of advising, most students do the online entrance counseling and online exit counseling.Once students complete those "counseling" sessions, the student loans kinda go out of sight, out of mind. So my question is, are there colleges, that are offering indepth workshops on financial aid? -- I also like the idea of the counseling centers. We actually need those for all aspects of higher education, from admissions to financial aid and more. A lot people operate under the assumptiont that the information is readily available and that's enough. But, for many, if you have no prior knowledge or no physical person to assist with navigating the higher education process, it all can be overwhelming. Everyone is entitled to their opinion. But, obvious financial aid and higher education reform is needed especially as we see more an more students( myself included) struggling to pay back student loans.