Lack of Financial Literacy Complicates Student-Aid Process, Report Says

May 13, 2013

A lack of reliable and transparent data on college costs and a complicated financial-aid-application process create an information gap that makes it difficult for students to pay for their higher education, according to a new report on overhauling the federal student-aid system.

The report, released last Wednesday by America's Promise Alliance, suggests that the gap could be closed by increasing financial literacy, strengthening college-readiness courses in high school, and simplifying the application process for federal student aid. The alliance describes itself as a partnership "committed to ensuring children experience the fundamental resources they need to succeed."

The report, "Improving the Financial Aid System to Increase College Completion," analyzes a discussion by a group of 23 students, high-school counselors, college financial-aid advisers, researchers, and businesspeople seeking to improve the federal financial-aid system.

According to the report, which is part of the Bill & Melinda Gates Foundation's Reimagining Aid Design and Delivery project, many participants in the discussion expressed concern over the lack of information available to students and their parents while the students are in high school and after they enter college. Because most students focus on being accepted by a college, it is often only after they have been accepted that they realize they may not be able to afford the cost, the report says.

"The lack of upfront information about costs can set successful applicants up for a devastating dose of reality," it says.

Participants in the discussion said high schools should start teaching students about financial aid much earlier than their senior year. One public-policy expert said that goal could be achieved with legislation requiring high-school students to complete financial-literacy courses.

Many participants also said counselors should emphasize financial issues more during the college search. One former counselor suggested that schools require students and their parents to practice filling out the Free Application for Federal Student Aid during the students' sophomore and junior years so the process is not as foreign by senior year.

In addition to citing a lack of easily accessible and comprehensive data about college costs, most participants said it was unclear who should be responsible and accountable for providing that information—high schools, colleges, policy makers, or loan providers. Many agreed that colleges should bear the brunt of such a responsibility, by providing more transparency, aiding students to navigate the financial-aid system after they arrive, and helping them make choices to avoid heavy debt.

"There is consensus on the need for more information," one participant said. "But we're still putting the onus on the students. We need to make the institutions demonstrate value."