Bait and Switch in Financial Aid Packaging
It is not as simple as the below linked piece in Hechinger Report suggests. See: http://bit.ly/1cVea0c. If we want to make meaningful change to the world of higher ed costs, we really need to know what is happening and make suggestions and offer solutions that speak to the reality of the situation.
From my years as a law professor with expertise in consumer finance (and before I was a college president), I know what bait and switch is. It is defined as "the action (generally illegal) of advertising goods that are an apparent bargain, with the intention of substituting inferior or more expensive goods." In other words, you come to the store thinking you will get a large screen plasma TV only to find an old model without all the bells and whistles that is smaller in size than expected and than as advertised. Or, you land in the store to realize that the price of the TV you thought you were getting for $999 is actually, when all is said and done, being sold for $1999.
What is happening in higher ed financial aid packaging is not optimal but it is not bait and switch in any traditional sense. There is no false advertising in most instances and if students come thinking one thing and experience another in year two, it is not because the institution is cheating -- it is because there is a lack of understanding of financial aid, its processes, the failure to ask the right questions and an institutional disinclination toward transparency that is most assuredly not good. Now there could be some prevarication in that institutions may agree to keep financial aid level. That is a "sharp" practice." And, there is some harm in blended discount rates as it does not reveal levels of discounting by year.
Truth: the financial aid packaging issues are vastly more complex than portrayed in Hechinger piece. First, federal aid must be applied for yearly. Ask: does that make sense? Lots of paperwork and resigning of documents. Why not keep federal aid calculations in place for at least two or three years --- any dramatic income changes up or down that a student or parent experiences could be handled through a separate appeals process. Death, loss of a job, winning the lottery, re-employment, deployment. There are ways to process these situations, and threshold levels of change could be established.
Second, what happens is that federal aid available dollars increase the further you progress (learn more; borrow more). So, what some institutions do is decrease their own aid by the amount of the government increases each year. Now, in theory that is fine -- but if tuition room and board increases and the institution is lowering not raising aid, there will be a shortfall. Ponder solutions like: institutions will provide level aid at least for four years (assuming level need).
Third, some scholarships are limited to first year students. So, the package changes -- non-disclosure perhaps but not exactly bait and switch. Ask institutions not what their blended discount rate is, ask what their per class discount rate is. If it is high first year and way way lower second year, that would tell you several things: there are retention issues and upper level students leave or there is differential pricing. Losing students could lower aid as there are fewer students to fund.
What is raised here is just the tip of the iceberg in terms of explaining packaging. Look at state aid; look at federal work study; look at grants; look at Pell. These items all impact aid packages that colleges provide and continuity of giving at a level amount. Here's my point: whatever is happening, it is not traditional bait and switch, and we need to be careful what we label what is happening because that misrepresents what, in practice, is occurring. Yes, some institutions are not transparent; some may not be disclosing and some could be lying outright. But, what is more likely much of the time is that there is information asymmetry: families know less than colleges in terms of packages for year one and beyond. The wrong or no questions are asked and folks also need to understand how to understand the answers given -- which themselves signal.
And solutions for the growing costs of education and the shift in $$ over the four or six years, that is yet another question --- that also is fraught with complexity if one wants to find solutions. There are ways to improve financial aid packaging for students -- of that I am absolutely sure. 100% sure. Whether we have the will to make those changes is another issue altogether. Another topic for another blog.
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