Warning: Net Price Calculators Fail to Provide Adequate College Cost Estimates
The Oct. 29 federal deadline for U.S. colleges to post “net price calculators” on their websites, which give students better ideas of how much it would cost to attend different schools, is fast approaching. But there’s a problem. According to experts, they don’t work very well.
The web-based tools, which were mandated by the federal government under the Higher Education Opportunity Act of 2008, don’t do a very good job of taking colleges’ sticker prices, applying answers to various questions about family finances, and spitting out a answer that’s close to the reality of what individual students would have to pay.
As a student, you and your parents should be careful when using a net price calculator and you should probably take the ballpark estimates they produce with a grain of salt. Here’s some advice for helping you use net price calculators.
Kinds of Net Price Calculators: Federal, Third-Party, and Custom
There are three kinds of net price calculators: the federal calculator designed by the U.S. Department of Education, which colleges can just take and plop on their websites to satisfy the federal mandate and meet the Oct. 29 deadline without having to make a real effort; more sophisticated calculators designed by third party developers and sold to schools; and custom calculators developed by individual schools to match the schools’ particular financial aid picture.
The federal calculator is the worst. In fact, it might just be useless. A recent study that ran 145,000 real student profiles through the federal tool found that it was wrong 54 percent of the time. The reason is because the calculator doesn’t ask many questions, which means the answer isn’t based on much data and is typically off by thousands of dollars. For example, to determine expected family contribution (EFC), the federal calculator asks just seven questions. In comparison, the Free Application for Federal Student Aid (FAFSA), the federal questionnaire that all students seeking federal financial aid need to fill out, uses 74 different data points in order to get it right.
Third-party calculators are better. Unlike the federal calculator, which uses no algorithms and instead opts for simple spreadsheets, third-party net price calculators are more complex and, therefore, produce more accurate results. Companies like the College Board and Student Aid Services develop calculators and sell them to schools that want to do a better job of providing more accurate estimates than are possible with the federal tool.
Custom calculators are typically the most accurate, but even they’re not perfect. Rice University in Houston, Texas, for example, tested the federal tool, a Texas state calculator, and the third-party College Board calculator before deciding to invest in the development of its own proprietary tool. But the school admitted that, even with a custom calculator, they could “never hit it right on the money because there is an art and science to create an aid package.”
3 Tips for Using Net Price Calculators
1. Look at the number of questions asked by the calculator. Fewer than 15 means the estimate will be wildly incorrect. Around 25 questions means a rough estimate. And 30 to 45 questions means you’re likely getting an accurate estimate.
2. Watch out for “front loading,” which means the school is awarding more aid during the first year to entice students to enroll, then cutting aid in subsequent years. This bait-and-switch tactic, especially prevalent with the federal calculator, often makes expensive private institutions look more affordable than state colleges. Avoid looking only at data from first-year students. Instead, research the percentage of students who matriculate and actually graduate. And don’t be afraid to ask a school about its financial aid policies during years one through four. Many schools like to substitute student loans for institutional grant-based financial aid after the first year.
3. Once you have the dollar figure from the school’s net price calculator, you and your parents should call the school and ask if the ballpark figure is accurate. If a financial aid office is helpful at this point, and wants to talk to you and your parents about financial aid, that’s a good sign. If not, you might want to consider a different college.
A clarification, custom net price calculators, like the ones by Student Aid Services used by Rice University, are the most accurate because of their algorithmic base, which uses a college’s current or future aid awarding formulas. Rice University of Houston did not build a calculator however asked Student Aid Services to do so because it values accuracy highly and wants to provide detailed aid eligibility information to prospective students.
You can try it: https://rice.studentaidcalculator.com/survey.aspx
The ‘warning’ headline really refers to the estimated 5,7000 post-secondary schools creating NPCs from the free federal template calculator.
However, custom or home-grown NPCs that ask 30 to 40 questions in the few minutes it takes to microwave dinner are reliable and produce useful information for families. About 1,500 colleges so far are posting accurate NPCs.
Mary,
Thanks for taking the time to share your thoughts with me and our readers about net price calculators (NPCs) and your company’s role in developing the NPC used by Rice University.
First, I would like to take the opportunity to acknowledge a few of your points. The AOL story we used to help research our blog post did not specify Student Aid Services as the developer of the Rice NPC. Thank you for clarifying the role that your company played. Students interested in sampling the custom NPC that Student Aid Services developed for Rice can visit rice.studentaidcalculator.com.
Additionally, I think that you and I are in agreement that custom NPCs are the most accurate type of NPC. In fact, this blog post echoes your comment that custom calculators do a better job of matching schools’ particular financial aid pictures. In this case, rather than selling Rice a stock third-party calculator, which some NPC developers may do, your company worked with Rice to develop a custom calculator. The result is a better ballpark estimate of the cost of attendance at Rice that more closely relates to the figure that a student can expect to get when he or she is admitted to the university and receives his/her financial aid award letter.
However, while we appreciate the stake your company has in promoting its product, custom calculators like those developed by Student Aid Services are still limited to producing ballpark estimates, regardless of the algorithmic bases these custom calculators use. Even if some ballpark estimates are better than others, they’re still only estimates and do not indicate the actual cost of attendance for a particular school. Instead, the federal government claims that its calculator can achieve a number that’s “close,” while third-party developers are essentially claiming that their calculators can achieve a number that is “closer” or “close enough.”
While even the most accurate NPCs may ask 30 or 40 questions in an attempt to cover all of a family’s financial bases, the Free Application for Federal Student Aid (FAFSA) — which students are required to fill out in order to qualify for federal financial aid — uses 74 different data points just in its calculation of expected family contribution. And while you claim that 30 or 40 questions about individual and family finances can be answered “in the few minutes it takes to microwave dinner,” research doesn’t support that claim. In fact, more families are eschewing lengthy NPCs for shorter ones for reasons of convenience, a tradeoff that has the potential to create a situation where more families are getting less accurate information.
Even Rice noted the limitations of the custom NPC that Student Aid Services developed for the school. As quoted in our blog post, Anne Walker, director of student financial services for Rice, stated that the university could “never hit it right on the money because there is an art and science to create an aid package.”
And that is precisely our point. Parents and students are being told that NPCs have been mandated to help them determine which schools they can afford to attend, when, in reality, the only way for families to get truly accurate figures for a school’s cost of attendance is to apply to a college, gain admission, and receive an official financial aid award letter from the school’s financial aid office.
We thank you for providing some insight into how NPCs work. However, we stand by the characterization of NPCs in our blog post, including our advice for using NPCs and our warning to parents and students to maintain caution when using the tools to avoid the financial dangers inherent in “shopping” for college.
Sincerely,
Shannon Rasberry
What’s not being discussed is what are the 3rd parties (and hence the schools) doing with the information provided? You can run the Collegeboard NPC as a “guest” (which is painful if you want to do different scenarios) or register (which allows you to make individual question changes).
Are schools also using 3rd party NPC as a way of gathering even pre-inquiry data on potential applicants?
Also, while the custom calculators may provide more “accurate” results, the prospective user does not have context when comparing like scenarios. For example, I ran the same scenario through 2 large urban, private schools in a Northeast city and got one showing almost 0% discount and the other 40%. I ran two NE state schools using the same data and again got a 25% difference (on asking, I did learn the low discount state school actually did want to discourage high need out of state inquirers).
Maybe that is the point that ultimately, you still need to call the school; however, it seems to me to defeat the spirit of the HEOA requirement. I think it would have been far better to make schools simply post accurate Gross Cost (tuition, fee, room, board) and then the average merit and need-based aid awards with some description of what profile characteristics constitute “average” for the school with some bands (since many schools put admits in bands by academic/need characteristics)
Many “customized” NPC may actually give false hopes to many applicants as much as “realistic” expectations.