The Vast Array of Net Price Calculators

Net price calculators are designed to give students and their families a clear idea of how much college will cost them each year after taking available financial aid into account. All colleges have to post a net price calculator under the Higher Education Opportunity Act of 2008, but these calculators take a range of different form. The Department of Education has proposed a standardized “shopping sheet” which has been adopted by some colleges, but there is still a wide amount of variation in net price calculators across institutions. This is shown in a 2012 report by The Institute for College Access and Success, using 50 randomly selected colleges across the country.

In this blog post, I examine net price calculators from six University of Wisconsin System institutions for the 2013-14 academic year. Although these colleges might be expected to have similar net price calculators and cost assumptions, this is far from the case as shown in the below screenshots.  In all cases, I used the same student conditions—an in-state, dependent, zero-EFC student.

Two of the six colleges selected (the University of Wisconsin Colleges and UW-La Crosse) require students to enter several screens of financial and personal information in order to get an estimate of their financial aid package. While that can be useful for some students, there should be an option to directly enter the EFC for students who have filed the FAFSA or are automatically eligible for a zero EFC. For the purposes of this post, I stopped there with those campuses—as some students may decide to do.

(UW Colleges and UW-La Crosse, respectively)

UW Colleges Net Price Calculator

La Crosse Net Price Calculator

UW-Milwaukee deserves special commendation for clearly listing the net price before mentioning loans and work-study. Additionally, they do not list out each grant a student could expect to receive, simplifying the information display (although this does have its tradeoffs).

Milwaukee Net Price Calculator

The other three schools examined (Eau Claire, Madison, and Oshkosh) list out each type of financial aid and present an unmet need figure (which can be zero) before reporting the estimated net price of attendance. Students may read these calculators and think that no borrowing is necessary in order to attend college, while this is not the case. The net price should be listed first, since this tool is a net price calculator.

(UW-Eau Claire, UW-Madison, and UW-Oshkosh, respectively)

Eau Claire Net Price Calculator

Madison Net Price CalculatorOshkosh Net Price Calculator

The net price calculators also differ in their terminologies for different types of financial aid. For example, UW-Eau Claire calls the Wisconsin Higher Education Grant the “Wisconsin State Grant,” which appears nowhere else in the information students receive. The miscellaneous and travel budgets vary by more than $1000 across the four campuses with net price calculators, highlighting the subjective nature of these categories. However, they are very important to students because they cannot receive more in financial aid than their total cost of attendance. If colleges want to report a low net price, they have incentives to report low living allowances.

I was surprised to see the amount of variation in net price calculators across UW System institutions. I hope that financial aid officers and data managers from these campuses can continue to work together to refine best practices and present a more unified net price calculator.

The Great Student Loan Interest Rate Debate

As I write this post, the House of Representatives is currently debating the future of student loan interest rates. Under current law, the rates on subsidized Stafford loans for undergraduates (the rates which get the most attention) will double on July 1 from 3.4% to 6.8% without Congressional action. The same debate was held last year under the same parameters, but Congress and the President agreed to extend interest rates for an additional year.

There have been a wide range of proposals put forth regarding plans to address the interest rate cliff, an outstanding summary of which was written by Libby Nelson in Inside Higher Ed. (In addition to the plans listed in that article, some Senate Democrats have supported a two-year extension to current law in order to allow for the Higher Education Act to be reauthorized.) Most proposals move to tie interest rates to the market—represented here by borrowing costs for the federal government—but the plans vary widely in their ideas of what the relevant market should be.

Proposals put forth by the Obama Administration and House and Senate Republicans all tie interest rates to long-term Treasury bills, but vary in their other features. (I’ve previously written on the Obama Administration’s proposal.) While the President has threatened to veto the common House GOP proposal over certain aspects, there is enough common ground here to reach an agreement.

However, proposals put forth by certain Democratic senators, particular Sen. Elizabeth Warren from Massachusetts, confuse long-term lending risks with short-term credit markets. She has proposed tying student loan interest rates (which are repaid for at least ten years once a student leaves college) to the interest rate the Federal Reserve charges banks for very short-term borrowing. Jason Delisle of the New America Foundation, hardly a bastion of conservatism, crushes her argument in a great piece of writing. He notes the confusion between short-term and long-term rates, as well as accounting for the probability of default. I would also note that if Congress wishes to help make college more affordable, it’s a better idea to give the funds upfront to students than to lower interest rates later on–long after the enrollment decisions have been made.

The federal government should move toward some sort of a market-based strategy for interest rates with certain student protections. This would allow for the costs of student loans to be more adequately reflected in the federal budget. (And if interest rates get too high, maybe it’s a reminder for Congress and the President to produce a balanced budget!) With that being said, I would still expect to see a short-term extension of the current interest rates as Congress may end up deadlocked on this issue until the Higher Education Act is reauthorized.

Net Price and Pell Enrollment: The Good and the Bad

I am thrilled to see more researchers and policymakers taking advantage of the net price data (the cost of attendance less all grant aid) available through the federal IPEDS dataset. This data can be used to show colleges which do a good job keeping the out-of-pocket cost low either to all students who receive federal financial aid, or just students from the lowest-income families.

Stephen Burd of the New America Foundation released a fascinating report today showing the net prices for the lowest-income students (with household incomes below $30,000 per year) in conjunction with the percentage of students receiving Pell Grants. The report lists colleges which are successful in keeping the net price low for the neediest students while enrolling a substantial proportion of Pell recipients along with colleges that charge relatively high net prices to a small number of low-income students.

The report advocates for more of a focus on financially needy students and a shift to more aid based on financial need instead of academic qualifications. Indeed, the phrase “merit aid” has fallen out of favor in a good portion of the higher education community. An example of this came at last week’s Education Writers Association conference, where many journalists stressed the importance of using the phrase “non-need based aid” instead of “merit aid” to change the public’s perspective on the term. But regardless of the preferred name, giving aid based on academic characteristics is used to attract students with more financial resources and to stay toward the top of prestige-based rankings such as U.S. News and World Report.

While a great addition to the policy debate, the report deserves a substantial caveat. The measure of net price for low-income students only does include students with a household income below $30,000. This does not perfectly line up with Pell recipients, who often have household incomes around $40,000 per year. Additionally, focusing on just the lowest income bracket can result in a small number of students being used in the analysis. In the case of small liberal arts colleges, the net price may be based on fewer than 100 students. It can also result in ways to game the system by charging much higher prices to families making just over $30,000 per year—a potentially undesirable outcome.

As an aside, I’m defending my dissertation tomorrow, so wish me luck! I hope to get back to blogging somewhat more frequently in the next few weeks.

Recent Trends in Student Net Price

In the midst of the current economic climate and the rising sticker price of attending college, more people are paying attention to the net price of attendance. The federal government collects a measure of the net price of attendance in its IPEDS database, which is calculated as the total cost of attendance (tuition, fees, room and board, and other expenses) less any grant aid received. Since the 2008-2009 academic year, they have collected the average net price by family income among students who receive federal financial aid. In this post, I examine the trends in net price data by type of institution (public, private nonprofit, and for-profit) among four-year colleges and universities (n=1753).

The first figure shows the average net price that families faced in the 2010-11 academic year (the most recent year available) by family income bracket. This nicely shows the prevalence of tuition discounting models, in which institutions charge a fairly high sticker price and then discount that price with grant aid. (Part of the discount in the lowest two brackets is also state and federal need-based grant aid.)

figure1_netprice

The next figure shows the net price trends over the period from 2008-09 through 2010-11 for the lowest (less than $30,000 per year) family income bracket.

figure2_netprice

It is worth noting that the public and for-profit sectors largely held the net price for students from the lowest-income families constant over the three-year period (0.6% and -3.2%, respectively), while nonprofit colleges increased the net price by 5.6% during this time. This might show an institutional commitment to keeping the net price relatively low for the neediest students, but also keep in mind that the maximum Pell Grant increased from $4,041 to $5,273 during this period. Colleges may not have changed their effort, but instead relied on additional federal student aid. The uptick in the net price at private nonprofit universities may have been a function of pressures on endowments that restricted institutional financial aid budgets.

The final figure shows the net price trends for the highest family income bracket (more than $110,000 per year)—among students who received federal financial aid.

figure3_netprice

Three observations jump out here. First of all, the net prices for nonprofit and for-profit universities are nearly identical for the highest-income students. This shows the financial model for nonprofit education, in which “full-pay” students are heavily recruited in order to pay the bills and to help fund other students. Second, the average net price at public universities increased by 9.4% during this period for the highest income students, compared to only 4.6% at nonprofit and 0.4% at for-profit institutions. As per-student state appropriations declined during this period, public institutions relied more on tuition increases and recruiting out-of-state and foreign students if at all possible. Finally, the flat net price profile of for-profit colleges across the income distribution is worth emphasizing. It seems like these colleges have reached a point at which additional increases in the price of attendance will result in net revenue decreases.

I would love to hear your feedback on these figures, as well as suggestions for future analyses using the net price data. I am eagerly awaiting the 2011-12 net price data, but that may not be available until this fall.

Improving Net Price Data Reporting

As the sticker price of attending colleges and universities has steadily increased over the past decade, researchers and policymakers have begun to focus on the actual price that students and their families face. The federal government collects a measure of the net price of attendance in its IPEDS database, which is calculated as the total cost of attendance (tuition, fees, room and board, and other expenses) less any grant aid received. (More information can be found on the IPEDS website.) I have used the net price measure in my prior work, including the Washington Monthly rankings and my previous post on the Net Price Madness tournament. However, the data do have substantial limitations—some of which could be easily addressed in the data collection process.

There are two different net price measures currently available in the IPEDS dataset—one for all students receiving grant aid (federal, state, and/or institutional) and one for students receiving any federal financial aid (grants, loans, or work-study).  The average net price is available for the first measure, while the second measure breaks down the net price by family income (but does not report an average net price.) For public institutions, both of these measures only include first-time, full-time, degree-seeking students paying in-state tuition, which can substantially limit the generalizability of the results.

Here, I use my current institution (the University of Wisconsin-Madison) as an example. The starting sample for IPEDS is the 3,487 first-time, full-time, degree-seeking freshmen who are in-state students. Of those students, net price by family income is calculated for the 1,983 students receiving Title IV aid. (This suggests that just over half of in-state Madison freshmen file the FAFSA.) Here are the net price and number of students by income group:

0-30k: $6,363 (n=212)
30-48k: $10,098 (n=232)
48-75k: $15,286 (n=406)
75-110k: $19,482 (n=542)
110+k: $20,442 (n=591)

The average net price is calculated for a slightly different group of students—those who received grant aid for any source (n=1,858). The average net price is $14,940, which is lower than the average net price faced by students who file the FAFSA ($16,409) as some students who do not receive institutional grants are included in the latter measure. However, the latter number is not reported in the main IPEDS dataset and can only be calculated by digging into the institutional reports.

I would encourage IPEDS to add the average net price for all FAFSA filers into the dataset, as that better reflects what students from financially modest backgrounds will pay. Additionally, to counter the relatively small number of students who may have a family income of less than $30,000 and to tie into policy discussions, I would like to see the average net price for all Pell Grant recipients. These changes can easily be made given current data collection procedures and would provide more useful data to stakeholders.

The 2013 Net Price Madness Tournament

Millions and millions of Americans will be sitting on the couch over the next several weeks watching the NCAA college basketball tournaments—and I’ll be keeping an eye on my Wisconsin Badgers as the men’s team makes its way through the tournament. Those of us in the higher education community have made a variety of brackets highlighting different aspects of the participating institutions (see Inside Higher Ed’s looks at the men’s and women’s tournaments, using the academic performance rate for student-athletes, and one from The Awl based on tuition, with higher tuition resulting in advancement).

I take a different look at advancing colleges through the tournament—based on having the lowest net price of attendance. Net price is calculated as the total cost of attendance (tuition and fees, room and board, books, and a living allowance) less any grant aid received—among students receiving any grant aid. I use IPEDS data from 2010-11 for this analysis, and also show results if the analysis is limited to students with family income below $30,000 per year (most of whom will have an expected family contribution of zero). Data for the 2013 Net Price Madness Tournament is below:

midwest_2013

west_2013

south_2013east_2013

SOURCE: IPEDS.

Overall Net Price

Round of 16

Midwest: North Carolina A&T ($6,147) vs. New Mexico State ($8,492), Middle Tennessee State ($9,148) vs. Albany ($12,697)

West: Wichita State ($8,079) vs. Ole Miss ($12,516), New Mexico ($10,272) vs. Iowa State ($13,554)

South: North Carolina ($11,028) vs. South Dakota State ($12,815), Northwestern State ($7,939) vs. San Diego State ($8,527)

East: North Carolina State ($9,847) vs. UNLV ($9,943), Davidson ($23,623) vs. Illinois ($15,610)

Final Four

North Carolina A&T ($6,147) vs. Wichita State ($8,079)

Northwestern State ($7,939) vs. North Carolina State ($9,847)

WINNER: North Carolina A&T (59% Pell, 41% grad rate)

Net Price (household income below $30k)

Round of 16

Midwest: North Carolina A&T ($4,774) vs. New Mexico State ($5,966), Michigan State ($5,569) vs. Duke ($8,049)

West: Southern University ($8,752) vs. Wisconsin ($6,363), Harvard ($1,297) vs. Iowa State ($8,636)

South: North Carolina ($4,101) vs. Michigan ($4,778), Florida ($3,778) vs. San Diego State ($3,454)

East: Indiana ($3,919) vs. UNLV ($6,412), Davidson ($7,165) vs. Illinois ($7,432)

Final Four

North Carolina A&T ($4,774) vs. Harvard ($1,297)

San Diego State ($3,454) vs. Indiana ($3,919)

WINNER: Harvard (11% Pell, 97% graduation rate)

Depending on which version of net price is used, the results do change substantially. Some colleges dramatically lower their net price of attendance for the neediest students, while others keep theirs more constant in spite of Pell Grant funds being available. Harvard’s victory on the lowest-income measure does ring somewhat hollow, as its percentage of students receiving Pell Grants (11%) tied with Villanova for the lowest in the tournament.

Thanks for reading this post, and feel free to use these picks if you choose to fill out a bracket for the real tournament. Do keep in mind that low net prices and basketball prowess may not exactly be correlated!

Should Campuses be Able to Limit Student Loans?

The National Association of Student Financial Aid Administrators jumped into the financial aid reform debate this week with the release of their policy paper as a part of the Gates Foundation’s Reimagining Aid Delivery and Design (RADD) project. Many of the recommendations are similar to other papers in the panel (including proposals to increase the maximum Pell Grant for certain students and providing more information for students and their families to make better college decisions)—and an additional recommendation of exploring an early commitment program for Pell recipients is informed by some of my research, which is pretty nifty.

The NASFAA report does make one recommendation which will likely prove to be highly controversial—limiting eligibility for student loans for certain groups of students in a clear effort to reduce student loan default rates. First, NASFAA suggests that students who do not meet a baseline level of academic preparation (perhaps a combination of ACT/SAT scores and high school GPA) would not be initially eligible to take out federal student loans. This proposal would be similar to the academic eligibility index used by the NCAA to determine student-athletes’ ability to play college sports. This proposal could have the effect of ending the open-access institution as we know it, depending on exactly where the cutoff is set. While it is true that students with lower standardized test scores are less likely to complete college, I’m very hesitant to place a substantial barrier to college entry—especially for students who did not enroll in college directly after completing high school.

The report also contains a recommendation allowing colleges to restrict groups of students’ ability to borrow if the financial aid officer feels that the loan funds are not needed or risky. For example, education majors’ loans may be limited compared to business majors because of their lower annual earnings (and reduced repayment abilities). Restricting access to loans by program characteristics (instead of individual characteristics) reduces the burden on financial aid officers, but also fails to take individual characteristics into account unless a student appeals for professional judgment.

The proposal to limit student loans will penalize students who cannot pay for college by any other means—especially for dependent students who cannot get parental support to pay for their expected family contribution. Additionally, many students cannot borrow the maximum amount of loans under current rules, which base eligibility in part on the estimated cost of attendance. Research suggests that this posted cost of attendance may be much lower than the actual cost of attending college, as institutions have an incentive to make the college look as affordable as possible.

While I am concerned about these particular portions of NASFAA’s proposal, they raise concerns that are of genuine merit and concern in the financial aid and policy communities. I would be surprised if they become a part of federal rules in any meaningful way, but this does show the diversity of opinions within the RADD group and the importance of listening to as many stakeholders as possible before redesigning the financial aid system.

More Proposed Financial Aid Reforms

The past few months have been an exciting time for financial aid researchers, as many reports proposing changes in federal financial aid policies and practices have been released as a part of the Bill and Melinda Gates Foundation’s Reimagining Aid Design and Delivery (RADD) project. The most recent proposal comes from the Education Policy Program at the New America Foundation, a left-of-center Washington think tank. Their proposal (summary here, full .pdf here) would dramatically shift federal priorities in student financial aid—by prioritizing the federal Pell Grant over all other types of aid and changing loan repayment options—without creating any additional costs to the government. Below, I detail some of the key proposals and offer my comments.

Pell Grant program

(1)     Shift the program from discretionary spending to an entitlement. I’m torn over this proposal. The goal is to guarantee that funding will be present for students in order to provide more certainty in the college planning process (a goal in my work), but moving more items to the entitlement side of the ledger makes cutting spending in any meaningful way exceedingly difficult. A potential compromise would be to authorize spending several years in advance, but not lock us into a program for generations to come.

(2)    Limit Pell eligibility to 125% of program length (five years for a four-year college and three years for a two-year college). Currently, students are allowed 12 full time equivalent semesters of Pell eligibility, which can be used through the bachelor’s degree. This means that students who only seek to earn an associate’s degree can use the Pell for six years in a two-year program. This can safely be cut back (to three years, perhaps), but I’m not sure if cutting all the way back to 125% of stated program length is ideal. I would be concerned about students who can’t quite make it across the finish line financially.

(3)    Create institutional incentives to enroll Pell recipients and graduate students. New America has several prongs in this policy, including bonuses for colleges which enroll and graduate large numbers of Pell recipients. But the most interesting part is a proposed requirement that colleges which enroll few Pell recipients, have high net prices of attendance for Pell recipients, and have substantial endowments have to provide matching funds in order for students to be Pell-eligible. I think this policy has potential and doesn’t punish colleges for actions they can’t control—compared to other proposals, which have sought to tie Pell funding for public and private colleges to state appropriations.

Student loans

(1)    Switch all students to income-based repayment of loans. This would reduce default rates and simplify financial aid, but has the potential to let students attending expensive colleges off the hook. New America shares my concern on this, but switching to IBR could still have substantial upfront costs (which would later be repaid).

(2)    Set student loan interests based on government borrowing costs plus three percentage points. This proposal should result in a revenue-neutral student loan program (after accounting for defaults) and stop the games of reauthorizing artificially low interest rates for political gain. Loan rates would be fixed for each cohort of students, but vary across each incoming cohort.

(3)    Allow colleges to lower federal loan limits “to discourage excessive borrowing.” I’m concerned about this point of the proposal, at least for undergraduate students. Loan limits are currently fairly modest and students should have the right to borrow a sufficient amount of money needed to attend college, whether the college disagrees with that or not.

Other key points

(1)    Pay for the additional Pell expenditures by cutting education tax credits, savings plans, and student loan interest deductions. This is a common call by financial aid researchers, and not just because academia tilts heavily to the left. Economic theory would suggest that plans to reduce the cost of college through grants should work as well as credits and deductions, but this assumes that students and their families fully account for the tax benefits in their decisionmaking and that the students who take up these programs are on the margin of attending college. Neither appears to be true. An additional tax deduction for being a student would likely be more effective than the current credit system.

(2)    Require better data systems and consumer information. I’m fully on board with getting better data systems so researchers can finally figure out whether financial aid works and student outcomes can be better tracked across colleges. I’m a little more concerned about some of the consumer information measures, as colleges should have the ability to tailor materials somewhat.

(3)    Create publicly available accountability standards. Gainful employment, in which for-profit colleges are examined based on job placement rates, could be a model for extending some sort of accountability to all colleges receiving federal funds. Graduation rates, earnings, and other measures could be used—or at the very least, the information could be made public to students, their families, and policymakers.

I don’t agree with everything that New America suggests in their policy proposals, but many of the suggestions would help improve financial aid delivery and our ability to examine whether programs work for students. To me, that is the mark of a successful proposal that could at least partially be adopted by Congress.

Is Money from Parents Bad for Students?

Most people would generally consider a student getting money from his or her parents while in college to be a good thing—after all, most traditional-age college students tend to have few resources of their own and additional money from Mom and Dad might help students work fewer hours (generally considered a good thing). But a new paper in the American Sociological Review by Laura Hamilton, an assistant professor of sociology at the University of California-Merced, challenges this assumption. In a paper titled “More Is More or More Is Less? Parental Financial Investments During College” (abstract here), she finds that parental financial assistance increases the likelihood of graduation, but is associated with lower student GPAs.

As a sociologist, Hamilton came to the project with the perspective that more financial resources are a good thing for a student due to the mere availability of resources and social capital. I don’t start from that perspective—and instead look at what students can do with the available funds. But I am also concerned that no-strings-attached gifts from parents might not be a good thing, since they may lack the performance requirements of merit-based financial aid. Additionally, the need for additional funds might reflect the inability of a student from a middle- to upper-income family to secure merit-based aid.

Hamilton uses two old, workhorse datasets in her analysis—the Baccalaureate and Beyond Study (B&B) of students who graduated in 1993 and the Beginning Postsecondary Students Study (BPS) of students who began college in 1990. She uses the B&B to focus on cumulative GPA at graduation as an outcome, which has two main limitations: we don’t know the relationship between parental assistance on dropout or changes in college major which may be associated with GPA. Because of that, she uses the BPS to look at graduation rates. Neither dataset is perfect or free of issues of causality, but it’s not a bad starting point (the datasets have to be appropriate to get into a top-tier journal like ASR).

The positive relationship between parental assistance and graduation rates won’t raise many eyebrows, but her claim that among students who get to graduation, those with higher levels of parental assistance have lower GPAs is more controversial. My biggest concern with the article is that appears that more help from the parents allows some marginal students to stay in school who otherwise would not have appeared in the dataset. If some of the 2.0 GPA students with parental assistance would have dropped out, there may not be differences in the GPAs of students who successfully completed college. Because of this, I have to take the finding on GPAs with a grain of salt.

 

On another note, this article also can teach scholars quite a bit about how to interact with the media. The mixed conclusion gives the education press and the general public an opportunity to run with a provocative conclusion—parents shouldn’t give their kids money (if they can) because they might just slack off. The headline in today’s Inside Higher Ed piece on the article (“Spoiled Children”) is an example of how research findings can be spun to get more eyeballs. While the media should run more reasonable headlines, it is the responsibility of academics to call out the education press when they play these sorts of games.

Innovating for Success in Financial Aid

Most education researchers and policymakers would likely agree that the current financial aid distribution system is both inefficient and not as effective as it could be. Under current rules, the vast majority of students do not learn about their eligibility for need-based financial aid until their senior year of high school. While waiting this long can help the federal and state governments make sure their aid dollars are targeted toward students who are currently the most financially needy, waiting that long to notify students of their aid awards makes little sense for students from persistently poor families.

There have been numerous efforts to streamline the financial aid process over the past several years, but they have neglected the importance of timing. If students know their financial aid package well before reaching college age, they can both academically and financially prepare for college should that be a match with their career and personal ambitions. However, most research fails to suggest possible solutions to important informational deficiencies.

Today, I am pleased to release a working paper with my frequent co-author (and political opposite) Sara Goldrick-Rab that seeks to advance the research agenda on the importance of timing in the financial aid process.  Under current policy, students whose families receive federal means-tested benefits in grade 12 currently are awarded the maximum Pell Grant (which results in the maximum award for many state and institutional grants). In our paper, we estimate what could happen to both college enrollment rates and government revenue if the aid award would happen in grade 8 instead of grade 12.

Pell Grant program costs would increase under this policy change for two reasons—because some students would likely be induced to attend college by the promise of financial aid and because about 30% of students would likely receive more money than under current law. But the federal government would also see an increase in tax revenue through the additional earnings of these students. Under a fairly conservative set of assumptions in a Monte Carlo simulation (make your own assumptions here and here), the program is fairly likely to result in positive net fiscal benefits over the long run.

Even though the initial results from this study appear to be promising, I still lose sleep at night about whether people will respond in the expected ways and whether any perverse incentives could be in play. As a result, any such policy change should be explored in a demonstration program to see whether the program is cost-effective in real life.

This paper will get a fair amount of media attention, which will hopefully result in useful feedback from smart people in the academic and policy communities. I would also love to hear your thoughts on the paper as well as the fun methodological assumptions.