Scholarships, Pell grants, Stafford Loans, Parent loans, Hope and the American Opportunity Tax Credit—all of these are terms of the modern college payment system, and all of which are likely in the vocabulary of your average college student.
The problem that I’ve found, however, is that all of the above (with maybe the exception of the two tax credits) are included under a larger umbrella: “financial aid,” also known as “financial award.” Since all fit under one larger category, it seems that we’ve confused the value of each type of aid, loan, or scholarship.
What Words Mean
We’ll start first with “award,” and I’ll allow Merriam to do the talking:
Award -to confer or bestow as being deserved or merited or needed
Okay, cool. Financial aid is a distinction of my awesomeness; Rock on, right? Well…no, not exactly.
Award, as it is used in college cost planning, is a name for any kind of money used for education expenses. Besides the repayment terms, there is a very distinct difference between being “awarded” a $4500 Pell Grant and being awarded a $4500 in Stafford Loan.
To be “awarded” $4,500 in Pell Grants is to be given an amount of money for having very little income or too few assets as decided by the government. To be “awarded” $4,500 in Stafford Loans is to have too few assets and income, but enough to make later payments. You get debt.
If this were explained to students, I think they might have a different perspective.
When Aid is Aid—and when it isn’t
Aid – to provide support for or relief to; help: to aid the homeless victims of the fire.
Hmm, it means to help, or give relief. Financial aid is used to describe all methods of paying for school—Grants, Loans, Scholarships, etc—and is lovingly adorned by many.
That doesn’t mean, though, that these actually help; in fact, only grants and scholarships erase the enormous cost of attendance at most universities. Loans, on the other hand, only defer and magnify such costs.
Aid in Practice
Have you ever asked someone for help…say, in moving you cross town? After asking for their help, did you offer to repay them by moving them 1.062 times? (6.2% is the current going rate on a Stafford loan ;))
When international aid poured into Haiti following the earthquake, did the donors expect something in return? No, that’s ridiculous–that’s not aid!
- Grants are to be called assistance.
- Scholarships are to be called aid.
- Student loans are to be called debt.
Here’s my expected example scenario:
“What’s up, man?”
“Nothin’, just got my financial aid!”
“Aw wow! You got a scholarship!”
See, scholarships are aid. They help, and don’t compound the problem as loans do. Why anyone sees the two on a level playing field is beyond me.
So how about the opposite:
“What’s up, man?”
“Nothin’, just got my student loan debt–$15,000 this year!”
“Ouch! Maybe you should reconsider that degree in underwater basket weaving.”
That speaks for itself, I think. 😉
While the semantic differences are small—just words, people!—changing the wording greatly influences our perspective on the situation.
I can’t remember how many times that I have heard “My financial aid just got here! Go to the bar?!”
Now imagine if that student had instead received his student loan debt. “My student loan just got here! Go to the bar?!” As an outsider, the first sounds celebratory while the second sounds reckless.
Anyway, that’s just my opinion. Give me yours!
(See also the statistics on the average student loan debt…insanity!)
This blog post was included in the 295th Carnival of Personal Finance.