Most Colleges Omit or Understate Net Costs in Financial-Aid Offers, Federal Watchdog Finds

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Nine out of 10 colleges either exclude or understate the net cost of attendance in their financial-aid offers to students, according to estimates published in a new report by the Government Accountability Office. The watchdog agency recommended that Congress consider legislation that would require institutions to provide “clear and standard information.”

The lack of clarity makes it hard for students to decide where to enroll and how much to borrow.

The report, published on Monday, paints a troubling picture of an industry that makes it difficult for consumers to understand the bottom line by presenting insufficient if not downright misleading information. Federal law does not require colleges to present financial-aid offers in a clear, consistent way to all students.

So each year families, high-school counselors, and college-access advisers must confront a frustrating fact: What an applicant gets from one college often looks nothing like what they get from another. Institutions have long embraced different ways of breaking down the costs that families must pay; some fail to clearly differentiate grants and loans. And many aid offers are full of jargon and terms that few earthlings know or understand.

All of that adds up to a major concern: The lack of clarity and transparency in aid offers can hinder a student’s ability to make an informed decision about where to enroll and how much to borrow. The stakes are especially high for low-income students with few resources, who, the report says, “may suffer severe consequences if they do not have access to clear information on which to base financial aid decisions.”

The GAO analyzed financial-aid offers from a nationally representative sample of 176 colleges, focusing on students who received federal Pell Grants. The agency assessed those offers according to 10 best practices identified by the U.S. Department of Education and a commission of other federal agencies. Nearly two-thirds of colleges (63 percent) followed half or fewer of the practices. No college in the sample adhered to all 10.

One of those best practices is to estimate the net price — the amount a student must pay to attend — by deducting only grants and scholarships from major costs (such as tuition, fees, housing, meals, books, and living expenses). The GAO found that an estimated 50 percent of colleges understate the net price by excluding specific costs from financial-aid offers — and/or by factoring in loans that must be repaid. “Doing this,” the report says, “makes a college appear less expensive than it is.”

Moreover, an estimated 41 percent of colleges do not include a net price in their offers, which can leave students in the dark about how much they will need to pay, the GAO found.

Policy makers have long recognized problems with financial-aid offers. A decade ago, the U.S. Department of Education introduced the College Financing Plan (formerly known as the Financial Aid Shopping Sheet), a standardized form meant to give consumers an easier way to understand and compare their offers. But that voluntary program has had a limited impact: The GAO estimates that about 35 percent of colleges use the form as a supplement to their own customized financial-aid offers. Just 3 percent of colleges use the form as their “official” offer.

In 2019 the U.S. Department of Education issued guidance on how colleges could make their financial-aid offers more transparent. It recommended that colleges refrain from a slew of common practices, such as sending offers that don’t include the cost of attendance; listing grants, scholarships, loans, and work-study together; and listing loans without clarifying the source: “Avoiding these things will improve the clarity, transparency, and basic understandability of financial aid offers for students and families.”

Also in 2019, a commission of 22 federal government agencies published a similar set of best practices. But just 15 percent of colleges, the GAO estimates, have changed their practices significantly since then.

Among the GAO’s findings:

  • 22 percent of colleges did not provide any information about college costs in their financial-aid offers.
  • 55 percent of colleges did not itemize key direct and indirect costs — and 55 percent did not provide a a total cost of attendance that includes those costs.
  • 31 percent of colleges included parent PLUS loans on their financial-aid offers, and 21 percent of colleges did not specify how how those loans differ from student loans.
  • 53 percent of colleges did not include “actionable next steps” for students in their financial-aid offers.

The GAO identified several reasons colleges might not be following best practices. One was competition: “Colleges can benefit by making themselves appear more affordable than their peers, according to stakeholders we interviewed,” the report says. “Some stakeholders said that colleges that follow the best practices by including information on the full cost of attendance in a financial-aid offer may be placing themselves at a competitive disadvantage to colleges that do not include this information. Specifically, prospective students may suffer ‘sticker shock’ from receiving a financial aid offer with an all-inclusive but larger cost of attendance and choose to enroll in a college whose offer presents a seemingly smaller, but less-inclusive cost of attendance.”

The GAO suggested that federal lawmakers consider legislation requiring colleges to adopt a standardized financial-aid form. “Without such action,” it said, “Congress will not be able ensure students and parents receive the clear and standard information they need to make more informed decisions about college.”

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