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Watch Out for Front-Loaded Scholarships


High school seniors and their parents often come away pleased as punch after meeting with college financial aid reps and recruiters.  That’s because they’re given attractive aid packages that give them hope that college will be affordable after all.

And while those scholarships for college freshmen do pan out to make paying for the first year a relative breeze, it’s what happens next that’s a troubling trend in American higher ed.

The trend in aid packages is not a happy one.

Many sophomores and even more juniors and seniors begin their school year with a rude awakening: the juicy aid packages they were given their first year are no longer as juicy.

Scholarships and grants, which make aid packages so wonderfully enticing for first-year students and their families, seem to melt away starting the second year of school. Either the student gets less altogether, or the aid she’s given is more loans than anything else.  As any student knows, loans are the least attractive form of financial aid there is.

In the industry, this concept is called the “bait-and-switch scholarship”, or the “frontloaded scholarship”.  It’s estimated that about half of our nation’s colleges do this with their grants.

Are Some Scholarships for College Freshmen Like ARM Mortgages?

Can we compare frontloaded scholarships to those sneaky mortgages that got so many into trouble during the housing bubble?

Like the beleaguered homeowners who claimed they didn’t know their adjustable rate mortgages could balloon after a few years, many students also claim they had no idea the aid deal offered was just for one year.

Families often don’t realize that when weighing the choices, they’re only dealing with financial information for that first year of school.  After that, it’s anyone’s guess what might happen to an aid package.  Even net price calculators only return results based on information from just the first year awards.

While most Financial Aid administrators aren’t exactly encouraging fantasies about how much aid students will receive in their upper class years, they aren’t exactly always forthcoming about this matter, either… judging by the number of students and families who are rudely surprised by diminishing aid offers after their initial year.

What do the colleges say about this trend?

Some college administrators claim that although frontloading may be common, it’s rooted in something far less cynical than bait-and-switch.  Scholarships for college freshmen can fall away when GPA’s get lower, for example.  Taking fewer credits per semester is another reason for receiving less in grants in later years.

Diminished state funding might also play a role, as could the college’s revenue status from year to year.  Tuition might go up because of inflation, but scholarships rarely do.

Finally, federal rules actually allow for more loans to be given with each progressive year.  The limit on loans is the lowest for freshman, in other words.

What’s happening in financial aid offices?

Financial Aid offices are staffed by busy, smart people who for the most part genuinely have a love for the educational system, and who have at least a passing interest in supporting students.  Otherwise, they’d be elsewhere since the career path doesn’t exactly promise riches to those who choose it. There are all sorts of pluses, but true wealth isn’t one of them.

Nevertheless, administrators and their teams can easily forget their roots, their higher purpose, and the code of ethics by which they’re bound to work.  Here’s a snippet from NASFAA’s (National Association of Student Financial Administrators) website:

“NASFAA members are required to exemplify the highest level of ethical behavior and demonstrate the highest level of professionalism.” – from the Statement of Ethical Principles, NAFSAA

Another statement instructs financial aid administrators to “remain aware of issues affecting students and continually advocate for their interests at the institutional, state and federal levels.”.  

Frontloading their aid packages isn’t exactly the type of behavior that supports the mission outlined by NASFAA in the statement above.  So what’s happening?

One thing that happens is that they’re also bound to comply with federal regulations, which if you know anything about higher ed administration, takes up the bulk of their resources.  What’s left is spent making sure they don’t violate FERPA  (privacy laws for students).

Striving for transparency and clarity, along with advocating for students and manifesting the highest level of integrity fall lower on the scale of priorities.  It’s simply a matter of allocating limited resources towards ensuring the school doesn’t violate some pretty clear-cut laws.  Acting ethically is a gray area that’s hard to define and even harder to enforce.

The problem is that aid is used as a recruiting tool.

If you really want to understand why frontloading of scholarships takes place, take it back a few steps. Go back to the recruiting phase of a student’s college career.  Schools are in a mad competition to attract the best students, and one of the major draws they can offer is a nice fat, juicy aid package.

Sure, luxury-level gym facilities with spa-like features will sway many students.  So will the vegan offerings in the cafeteria.  But when it comes down to it, money trumps everything else.

A student can get used to an “average” fitness facility that doesn’t have a fancy juice bar, especially if it means more of her tuition bill is being taken care of by a good aid package.  It’s the strongest recruitment tool out there.

So, what’s the answer?

Barring massive higher education reform and institutional change that will shake the foundation of both the financial aid and recruiting offices in every college from Maine to Hawaii, what can we do about this frontloading of scholarships?

For starters, awareness will go a long way towards protecting students and their families about the realities of scholarships.  That can happen in a number of ways, but of course the best way is for financial aid officers and their staff to be a lot more up front about the lopsidedness of their aid packages.

A glance at last year’s schedule of events at the NAFSAA annual conference reveals several workshops on helping students borrow responsibly, and only one that touched upon ethics.  There are a few workshops on managing scholarships but it’s hard to tell whether that means good or bad things for transparency or ethics.

What may be required is actual legislation if NAFSAA isn’t willing to step up and tackle the issue of so-called bait-and-switch scholarships.  However, for the moment, let’s have some faith in their ethics statement, and see if they’ll soon take up this matter.  Maybe at their next annual conference we’ll see some buzz on frontloading scholarships.

Meanwhile, not all colleges practice frontloading scholarships for college freshmen. Contact our academic team for help in selecting colleges that don’t front load their scholarships.

Jack Schacht

Jack Schacht has over 40 years in marketing, management, career development and business leadership. As president of College Funding Advisors and co-founder of My College Planning Team, he brings his unique talents to help families identify and implement strategies that can help them substantially reduce college costs.

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