Truth in Lending in Higher Education

Student loan debt is over $1 trillion in the United States and is now the second leading source of household debt, recently surpassing credit card debt. The Department of Education and the Consumer Financial Protection Bureau worked together this summer to try to address the ever-pressing problem of student debt. They released a Financial Aid Shopping Sheet that they hope colleges and universities will adopt.

The study and the resulting shopping sheet aim to help students “know before they owe.” The underlying problem is that students and parents commit to schools without understanding exactly how much they will be given, paying, and borrowing. College and universities present their financial aid letters in whatever form they please, often using inconsistent terms, making it nearly impossible to compare different financial letters side-by-side. The Financial Aid Shopping Sheet is a great way to solve that issue by standardizing the way the information is presented.

When you think about it, it’s surprising that regulations weren’t proposed before 2012. The higher education industry, as a whole, lacks regulations other industries have had for decades. For instance, credit card debt (which student loan debt recently surpassed) and mortgages (the current leading cause of household debt) have both fallen under the Truth in Lending Act since 1968. The Truth in Lending Act requires standardized disclosures of all costs and charges. Higher education, as an extremely large and increasingly expensive investment, should be no different.

It’s not that the colleges are purposefully misleading students and parents per se, but there are just so many different sources of funding when it comes to financing tuition. All of these various sources need to be presented in a student’s financial aid letter. Confusion can quickly arise when a loan suggestion, which will need to be repaid by the student, is sandwiched between a grant and a scholarship; this makes it very difficult to distinguish what is paid for, what the student needs to pay, and what the college suggests that the student borrows via loans.

The higher education industry needs to start standardizing the way student finances are presented. As of yet, only 10 colleges and universities have agreed to adopt the Financial Aid Shopping Sheet. The government didn’t make The Financial Aid Shopping Sheet a requirement, and it’s concerning that so few institutions have agreed to the terms. If there are any major concerns that are keeping colleges and universities from utilizing the shopping sheet, they need to be addressed. That way, the Department of Education and the institutions can come to a compromise that suits both parties. The sooner they can settle on some sort of standardization, the sooner we can all start focusing on the real issue.