Obfuscating Net Price

Study finds four-year colleges fail to meet federal standards for disclosing costs on their websites.

March 28, 2019
 
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When it last overhauled the Higher Education Act in 2008, Congress required that colleges make disclosures on their websites about the actual net price students would pay if they enrolled on campus.

Colleges were supposed to clearly display tools called net price calculators that would show students total costs after subtracting grants and scholarships and factoring in students' family incomes. The idea behind the requirement was that many would-be students see only college sticker prices and don't realize how much aid they may be able to obtain.

But many four-year institutions are failing to meet federal standards for their disclosures more than a decade later, according to a study released today by the University of Pennsylvania Graduate School of Education.

“One of the many advantages that students with wealthy parents have is they don’t have to worry about the cost to attend college,” said Laura Perna, the University of Pennsylvania professor who produced the study. “For most other people, the cost really does matter. And there are few ways to get an estimate of how much the out-of-pocket costs will be early in the process.”

The findings reflect earlier attempts to study net price calculators. They also add to other recent research on college cost transparency showing that financial aid award letters from colleges are often confusing and misleading, making it more difficult for families to determine the true cost of college.

While those award letters are sent to admitted students, the net price calculator was conceived to help prospective students' families estimate the cost of a college before they apply for admission or submit an application for federal student aid.

The study also puts a new spotlight on transparency as lawmakers reintroduce bipartisan legislation this week aimed at informing students about college costs.

Advocates for better information on college prices say students are less likely to pursue a degree if they don’t think they can afford it. And they may be less likely to prepare for college by taking advanced courses in high school.

On the other hand, misleading prices that don’t include the full cost of attendance can make a college look more affordable than it actually is, meaning many students may end up taking out loans to bridge the gap.

Perna found that some colleges did not have price calculators that could be located by navigating from their main webpage, as required by the Higher Education Act.

More commonly, information from colleges was incomplete or misleading. A third of colleges did not prominently display the correct net price. Some left costs of attendance like textbooks out of the net price estimate. Two-thirds of colleges used data that was either out of date or didn’t specify the academic year.

“There was a pattern of findings relating to misleading presentation of information,” Perna said.

The study used profiles for four low-income students with varying academic records and sought to get cost estimates for each one from 40 public and 40 private four-year colleges. There was no pattern in transparency based on the type of institution, although public colleges tended to rely on a federal template for price calculators.

Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, said there has always been skepticism at some colleges about the usefulness of a net price calculator. But others have embraced it as a vital consumer tool. The difference can depend on how much an institution uses tuition discounting, he said.

Draeger said no consumer tool should be seen as a panacea but the price calculator is useful for many students who do make use of it.

"For students who pay attention to it, I'm sure it's helpful in making college-going decisions," he said. "And we want schools to be in compliance with federal requirements."

Lawmakers in Congress are discussing a possible reauthorization of the Higher Education Act for the first time since 2008, when it was first mandated that colleges create the net price calculators. Senator Lamar Alexander, a Tennessee Republican and chairman of the Senate education committee, has made simplifying the Free Application for Federal Student Aid one of his goals for reauthorization.

Three bills introduced by lawmakers Wednesday would aim to produce better information about the cost of college. One of those bills, the Net Price Calculator Improvement Act, would have the Education Department create a central website where students could find and compare the net prices for multiple colleges.

Another would require institutions to use a standard format for financial aid award letters.

Jessica Thompson, director of policy and planning at the Institute for College Access and Success, said the net price calculator requirements in the 2008 higher ed law helped drive a “sea change” in discussions of the sticker price for college. But a TICAS study in 2012 had similar findings as the University of Pennsylvania report -- price calculators were often buried on college websites and provided inconsistent results.

She said the legislation would address those weaknesses in the current system.

“It’s a huge improvement,” she said.

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