Decoding the Financial Aid Mystery

A national report commissioned by the Government Accountability Office last November has elected officials and education advocates on Capitol Hill and across the country buzzing about what’s become a crisis in higher education. Despite a slew of government initiatives over the past decade to help universities accurately portray the cost of education to their students, the schools are refusing to be transparent about actual costs and financial aid, advocates say.

“Having guidance on this topic has not been sufficient to make schools do the right thing,” said Melissa Emrey-Arras, GAO’s director of education, workforce and income security. “Colleges are still presenting information in a way that does not give students and their families what they need to make informed decisions.”

The method to the madness is anyone’s guess, but the GAO’s report and Volt’s interviews with education leaders across the country suggest that schools are not at all on the same page in disclosing how much students actually have to pay. As a result, university students nationwide are taking on more unexpected debt when they come to campus—sometimes owing tens of thousands of dollars more than the advertised sticker price of their education.

The GAO report surveyed 204 of the country’s 4,134 two- and four-year colleges and universities, becoming the first report of its kind to be statistically significant in generalizing the entire national higher education landscape. According to Emrey-Arras, the essence of the report involved obtaining actual financial aid offers that schools had presented to real students. The government office then evaluated the award letters based on 10 best practices, which included common-sense disclosures such as separating financial aid gifts and grants from loans that students would eventually need to repay.

All but 28 of the surveyed schools responded, and GAO found a whopping 91% of those schools failed on the most basic principle: helping students estimate a net price. Instead of subtracting only gift aid from key costs like tuition and housing, just about every school also subtracted some combination of loans and work-study benefits. About a third of schools failed to include the price of indirect costs like transportation, meals and class expenses like textbooks in their letters, while nearly a quarter of schools informed students only about financial aid awards—without including information for any costs.

GAO found 41% of colleges failed to include a net price (full cost of attendance minus grants and scholarships) anywhere in the information provided to students, while an additional 50% underestimated the net price to “make college appear less expensive than it is.”

Massive Expenses

Emrey-Arras has spent the past two decades overseeing GAO’s studies on education but said the office’s most recent study was among the most alarming she’s seen to date. As more American families than ever think twice about the need for higher education and the skyrocketing costs that come with it, many schools now find themselves competing for students instead of vice versa.

To get a leg up, the schools are motivated to at least appear more affordable than other colleges and universities they compete with for students. The biggest losers in the entire scheme are the students themselves, Emrey-Arras said, who often show up to school only to find they owe thousands in unforeseen textbook, transportation, living and food expenses, as well as university fees, that weren’t listed in their aid letters.

“This isn’t about buying milk at the corner store,” she said. “This is about many thousands of dollars over multiple years and it’s a huge financial decision that affects not just students, but their families. When colleges play games, it’s not fair to students and families.”

GAO’s report found several instances of students showing up at school only to find they still owe more than $10,000. In one instance, a college understated a student’s total cost by more than $47,000 during the 2021-2022 school year when it made some $41,000 in loans appear as financial aid awards and excluded more than $6,000 in key indirect costs.

Julie Peller, the executive director of Washington D.C.-based Higher Learning Advocates, called the GAO report’s findings “striking but not surprising, unfortunately.” For six years, Peller has overseen the bipartisan non-profit group’s mission to advocate legislation that makes college more accessible and said schools’ abilities to manipulate how they present costs have left students comparing apples to oranges.

“More clear language to students could go a long way,” Peller said.

Guidance Not Enough

To be sure, the federal government has tried for years to steer higher education institutions in the right direction. In fact, it’s gone as far as providing a standard form and suggesting that colleges use it.

In 2012, the Department of Education released a model aid award letter called the Financial Aid Shopping Sheet, which evolved into the College Financing Plan. However, only 35% of schools are using it, said Diane Cheng, a research and policy VP at the Institute for Higher Education Policy.

Cheng, who spearheads the non-profit and non-partisan group’s financial aid and college affordability research, said understanding the net price (full cost of attendance minus grants and scholarships) is “critical” for students to compare financial aid offers and understand which colleges they can afford.

With only guidance from the federal government and no firm rules or regulations, higher education institutions perhaps have more free reign to hide and disguise costs than businesses in any other similarly sized industry. Emrey-Arras pointed to other complex financial products like credit cards and mortgages, where federal laws and regulations call for standardized consumer disclosures. Universities face no such regulations.

HLA’s Julie Peller compared the process of university shopping to buying a used car, where “you always end up paying more as you get further in the process than the price advertised to you.

“That’s problematic to me,” she said.

Moving in the Right Direction

Since the GAO went public with its findings in early November, several federal policymakers have promised swift action to fix the decades-old financial aid transparency problem. In early December, U.S. Reps Virginia Foxx (R-NC) and Lisa McClain (R-MI) introduced the College Cost Transparency and Student Protection Act, which would require colleges to use a uniform financial aid offer that can be easily compared between schools. Sen. Chuck Grassley (R-IA), Sen. Tina Smith (D-MN) and Rep. Young Kim (R-CA) who in 2021 co-sponsored a similar bill called the Understanding the True Cost of College Act, also cited the report as motivation for renewing their push behind financial aid reform.

Per Cheng, the bills essentially help make the “apples to oranges” and “apples to apples” comparisons so students can better understand their out-of-pocket costs.

What about variable costs like textbooks, housing, off-campus living and transportation, which can fluctuate semester by semester and even month by month with so many available options for students? Cheng said there’s still no clear direction from Congress or the U.S. Department of Education on how schools should estimate those costs. The FAFSA Simplification Act, set to go into effect this year, helped add “a little bit of standardization,” but it’s ultimately up to schools, Congress and the Department of Education to figure that out.

“In some cases estimating those costs can be difficult because students have control over indirect expenses,” Cheng said. “But at a minimum, financial aid award letters need to include all of those non-tuition costs. Even if students can make choices around housing and food to potentially bring down their costs, they need to understand those are necessary costs that they should take into account when thinking about attending college.”

Will anything happen this year? Interviewed advocates believe so. Unlike many other education bills, the push for financial aid transparency is mostly bipartisan, with Democrat and Republican congressional leaders standing behind it.