GAO Report on Financial Aid Award Letters Misses the Bigger Cost Transparency Issue
Today, the U.S. Government accountability Office released a report confirming what many of us already know. The lack of transparency on college costs is a problem. After collecting sample financial aid offers from 176 colleges from across the country, and comparing them to best practices published by the Department of Education, it found that only 9% of the colleges sampled estimated the net price students would be expected to pay by subtracting only grants and scholarships from the sticker price. A full 50% of respondents understated the net price students would pay by excluding key costs (e.g., books, living expenses) and/or factoring in loans as part of the financial aid. The balance of respondents didn't provide any net cost estimate at all.
As bad as it seems that many colleges systematically understate costs to get students to commit, the recommendation made by GAO for Congress to consider requiring colleges to furnish students with financial aid offers that follow best practices for providing clear and standard information falls woefully short. To level the playing field for colleges and prospective students, transparency efforts must start well before a financial aid offer is received. In fact, without transparency on expected financial aid, students will always be at a decided information disadvantage that could cost students in excess of $100,000 over a four year undergraduate program. While this seems a bit extreme, it comes from a real conversation I had recently with a parent of a high school senior. The student really wanted to attend School A, but the sticker price was $80,000/year so they opted for School B which only cost $50,000/year. At face value, this student was saving $120,000 over four years by going with his backup, and didn't even apply to School A because of costs. School A happened to have excellent financial aid though, covering nearly 100% over the students Expected Family Contribution, driving their actual cost for School A down to about $24,000/year. School B, on the other hand, offered no student aid, so this student lost out on attending their preferred school and will end up spending over $100,000 more to attend their second choice institution.
Reforming financial aid award letters is a step in the right direction. In the case of the student referenced above, if he had applied at both schools, he would have noticed that School A was more affordable. The challenge is that students rule out schools for costs well before they apply. Applications cost time and money, both of which are finite resources. Students can't easily find information on what their net costs will be before they choose what schools they will apply to, which causes students to miss out on great opportunities to save money by choosing a college that's a good financial fit for them.
There is a solution though. Transform Retirement offers a flat-fee college planning service that helps families to identify schools that should offer their student the best financial aid packages so they can make better decisions on which colleges to apply to and even better decisions when the award letters arrive. We also assist with optimizing student and parent financial circumstances to maximize eligibility for financial aid. College can be much more affordable with help from someone who knows how to tip the odds in your favor!