In the 2008 reauthorization of the Higher Education Act (HEA), the law permitting the disbursement of federal student loans, Congress required colleges and universities to provide a net price calculator on their websites. These calculators work to help students and their families determine their estimated out of pocket tuition cost, minus anticipated scholarships and grants.
With many legislators raising awareness of the need to reevaluate how financial aid is awarded, and Senator Lamar Alexander’s goal of reauthorizing HEA by the end of this year, now is the time to assess the effectiveness of the net price calculator (NPC) and its role in reducing federal student loan debt.
Congress intends for the NPC to be used as a pre-application tool for students and their families to determine how much attending a given school would cost and if completing the Federal Application for Student Federal Aid (FASFA) was necessary. The US Department of Education offers template for the NPC, primarily used by public institutions, and Congress requires institutions to make finding their NPC and its use as easy as possible. With this regulation and its accompanying rules, legislators theorize students can reduce their student debt burden by determining how much aid will be needed before even applying to a specific college.
In the eleven years since the NPC was put into place, the number of students who take out federal student loans to cover college costs has increased by 25% and over 44 million students now $1.5 trillion in loans. These figures do not necessarily correlate to the effectiveness of the NCC, but it does raise some questions as to the efficacy of its guiding philosophy.
There may be many reasons why the student loan debt continues to rise despite the implementation of the NPC, including an increase in federal student loan interest rates and the divestment of many states in their public universities, but one factor may be the NPC itself.
A recent study conducted by the University of Pennsylvania Graduate school of Education determines that a number of postsecondary institutions are not complying with federal law by providing intentionally misleading financial information. The researchers find that approximately one third of the institutions in the study fail to disclose program-based tuition variations, use outdated tuition rates for the NPC, or do not meet the minimum federal requirement for defining “net price” in the tool. Additionally, the study reveals more than half of the institutions do not provide accurate financial aid information including overestimates for scholarships and grants, as well as potential need differences for independent students versus parent-dependent. Student who use these institutions’ calculators run a greater risk of calculating incorrect cost estimates.
This begs the question: why do these colleges and universities fail to provide correct information or intentionally mislead potential students? Simply, the more loans a student takes out, the more money the institution receives without having to contribute aid in the form or grants or scholarships. If a prospective student is led to believe the net tuition price will be one total, only to learn their estimated family contribution is higher once they are admitted, the student is more likely to take out more federal aid to cover the difference.
The NPC may be a useful tool for some students and their families to better understand their estimated family contribution, but without transparency on the part of institutions to provide the most accurate information, it cannot meet the objectives as proposed by Congress those many years ago. Moreover, without proper administrative accountability measures, as the PennGSE study shows, institutions have no motivation to provide students with reliable data.
More research is necessary to determine the precise utility of the NPC, but in the interim Congress can take action to ensure that colleges and universities act in good faith. The new iteration of HEA must include more regulatory oversight to ensure that postsecondary institutions are not misleading students on the true cost of obtaining one of their degrees. Applying policy solutions, such as Chuck Grassley, Tina Smith, and Joni Ernst’s bipartisan, three-pronged plan to help prospective student make better financial decisions for their collegiate career can reduce costs for both families and taxpayers.