Parents of college students unaware of many financing options
The parents of this fall's college-bound freshmen may be breathing a collective sigh of relief that their children have cleared the admissions hurdle. But few parents understand the terms necessary to make fully informed financial aid decisions, says a new survey conducted by leading global strategic branding firm Siegel+Gale.
"Parents really don't understand the true cost of college and the financial help that is available," states Peter S. Cohl, Siegel+Gale's Higher Education practice leader, "nor do they understand the difference between loans, grants, scholarships and work-study funds.
"We found that more than three-quarters of survey respondents did not know the difference between cheaper government subsidized loans and unsubsidized loans, which are more expensive. And shockingly, 40 percent of working class families surveyed didn't realize that Pell Grants are not loans, but federal grants, which do not have to be repaid."
Siegel+Gale surveyed 202 parents of college-age children who have applied for financial aid in the past two years and who have evaluated financial aid award letters from schools. Yet according to the survey, the two major types of federal student loans, Stafford loans and Perkins loans, were correctly identified by only 53 percent and 33 percent of parents respectively.
More than three-quarters of parents (77 percent) do not know the difference between a subsidized loan and an unsubsidized loan. (Answer: A subsidized loan is based on financial need and an unsubsidized loan is not. With a subsidized loan, the federal government pays the interest incurred while the student is in school, and for a grace period after graduation.)
Other findings of Siegel+Gale's survey:
- 25 percent of parents do not know that grants in general do not have to be repaid
- Less than half knew that not all student loans require a credit check
- Over two-thirds were unaware that work-study money is taxable income to the student
Make Financial Aid Easier to Understand
Evaluating financial aid award letters gets more complicated when parents and students must compare offers from competing schools and make decisions under time pressure.
Siegel+Gale simplification expert Irene Etzkorn argues the root of the problem stems from a unique environment in which colleges, the federal government, and state agencies each use their own jargon, acronyms, and definitions. Ultimately this leads to added confusion.
"All of America's colleges and universities ought to adopt a simplified, standard financial aid award letter so parents can make comparisons across schools," says Mr. Cohl. He also recommends schools cluster financial aid award terms and rank them in order of value, from free (grants and scholarships, for example) to the most costly (private loans).
"The choices parents must make regarding financial aid will change the lives of their children for decades," Mr. Cohl noted. "That's why it is critical for parents to be fully informed in order to make smart decisions from the beginning."
About The Financial Award Letter Survey
Siegel+Gale's Financial Award Letter Survey findings are based on June 2008 online responses of 202 parents, 40-60 years old, who have at least one child of college-age and who have applied for financial aid in the past two years.