Beware of Colleges' 'Bait-and-Switch' Aid Offers

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Beware of Bait-and-Switch in College Financial Aid

By Liz Weston

LOS ANGELES -- Families receiving college financial aid offers this spring should beware: what they see this year may not be what they get next year.

Some colleges make their most generous offers to high school seniors as a lure to attend, a practice known as "front-loading." But those returning for their sophomore and subsequent years at university may get thousands of dollars less in grants and scholarships than they did as freshmen. Often, the free money is replaced by student loans.

About half of all colleges front-load their grants, according to financial aid expert Mark Kantrowitz, who analyzed data from the National Center for Education Statistic's Integrated Postsecondary Education Data System.

"Colleges practice front-loading because it is cheaper to have higher grants during the first year, when it affects enrollment, than during all four years," said Kantrowitz, publisher of, an education resource site. "Effectively, it is a form of bait and switch." College administrators, however, balk at that label and at the idea that front-loading is common.

Why Aid May Decline

Most colleges try to offer consistent aid packages throughout a student's career, and there are numerous reasons why grant aid may drop when first-year aid packages are compared to those offered to returning students, said Justin Draeger, CEO of the National Association of Student Financial Aid Administrators. "Higher education is subsidized by so many different sources, and those are constantly changing," he said.

Grants may be reduced because of institutional factors, such as changing revenue or state funding, as well as individual factors, such as students taking fewer credits or failing to keep up a certain grade point average, Draeger said.

Some schools want to limit debt for freshmen, who are more likely than returning students to drop out. Also, limits on federal student loans are lowest for first-year undergraduates: $5,500, compared to $6,500 for second-year undergraduates and $7,500 for those in their third year or beyond.

"Schools will stuff more loans into the package as a rule because the federal direct loan [limit] goes up each year," said Lynn O'Shaughnessy, author of "The College Solution" and a college consultant. "Also, schools don't increase merit awards as their prices go up each year."

$2,842 Average Drop at Private Schools

The drop in grant aid is particularly steep at private schools. Returning students at private, nonprofit colleges in 2012-13 averaged $2,842 less in grant aid than first-year students, according to The Chronicle of Higher Education, which used IPED data. The average drop-off was less severe for returning students at public colleges: $815.

Overall, the average net price for returning students -- what families actually pay after grants and scholarships are deducted -- is $1,400 higher than for first-year students, according to Kantrowitz's analysis of National Postsecondary Student Aid Study numbers.

Colleges also do not advertise that they practice front-loading, which cannot be detected by using the net price calculators embedded into college websites. The calculators estimate only the first year's cost of college after expected grants and scholarships are deducted. Loans are not considered by the calculators since they increase rather than decrease the cost of education.

Northeastern's Promise

Only a handful of colleges offer four-year commitments to prospective students that their financial aid won't drop, Draeger said. Northeastern University is one. The Boston institution not only promises grant and scholarship aid won't drop, but that this free aid will increase at the same rate that tuition increases.

The university's grant aid appears to fall when freshmen are compared to undergraduates overall, but school officials say that is because the school follows a cooperative education model that starts in the sophomore year, alternating classroom studies with six months of full-time work in career-related jobs.

Although guarantees are not common, Draeger said colleges have an ethical obligation to be clear in their financial aid offers which grants are renewable and under what circumstances.

When financial aid offers do not provide this information, families need to ask questions, said Martha Savery, Massachusetts Education Financing Authority and a former financial aid director for Harvard Graduate School of Education. "Families need to ask, 'If all things remain the same, can I expect the same type of aid [in subsequent years],' "? Savery said. "Being a good, educated consumer is part of the process."

The author is a Reuters columnist. The opinions expressed are her own.
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