Viewpoint

Go Figure: What Net Price Calculator Should Your Institution Offer?

By October 2011, all post-secondary institutions receiving federal Title IV funds must meet a new federal requirement to offer prospective students a net price calculator (NPC) on their Web sites. Financial aid and admissions offices at thousands of institutions are now deciding how to meet this mandate of the Higher Education Opportunity Act of 2008 (HEOA). Colleges and universities have the choice of (1) using the federal template provided by the U.S. Department of Education, (2) building their own calculator, or (3) using a calculator built by a third-party provider.

The developers of the federal template faced difficult challenges: to create just one tool that could be used for a wide variety of institutions; and to balance ease of use and accuracy. The NPC legislations states: “The term “cost of attendance” means the average annual cost of tuition and fees, room and board, books, supplies, and transportation for an institution of higher education for a first-time, full-time undergraduate student enrolled in the enrolled in the institution.” [HEOA 2008, Title I – Part H1-3, Sect. 132] The template calculates net price by subtracting the median merit and need-based grant aid from the price of attendance. The federal template, aimed at simplicity, asks dependent students only nine questions. As a result, the federal definition of “net price” is different from how many institutions typically describe it today.

Many institutions have long defined net price as the immediate out-of-pocket expenses prospective students and their families pay, and they subtract loans and work-study programs from the cost of attendance to reach a net price. However, the HEOA net price definition prohibits accounting for loans and work-study programs. A refrain we hear regularly revolves around generous institutional aid, which lowers the average price students pay in tuition at thousands of colleges well below publicized or “sticker” prices. Institutions that “discount” significantly face the problem of prospective students not realizing that need and merit aid could reduce their cost of college far below the “sticker price.” Reliable estimations of prospective students’ real cost of attendance could encourage students who might have been scared off by “sticker prices” in the past, to apply.

The federal template provides reasonable net price estimates for institutions that don’t award merit aid and enroll a majority of Pell Grant eligible students (household incomes $40,000 or less). However, it makes sense for colleges and universities offering significant merit aid to meet the federal mandate with a more expansive and accurate calculator. Many financial aid administrators worry that an inaccurate net price calculator will create more questions than answers for prospective students and their families. For this reason, many colleges have already decided that the federal net price template is not a good fit for them. As a financial aid administrator from one private college said last week, “We would like to use a very short calculator but we can’t because of the accuracy issue. No matter how big the disclaimer on a short calculator says this is not your actual award, we will have students and parents complain that ‘our calculator’ gave them a number that was nowhere close to what they got in an award letter.”

Many colleges and universities are concerned that the federal template’s extremely short survey will be a problem if the “net price” provided is often inaccurate. It makes sense that a wide range of student circumstances cannot readily be assessed by answering just nine questions, when the federal student aid application (FAFSA) requires more than 130 questions. These colleges and universities do not want to trade off precision for simplicity in their net price calculators.

Institutions are also considering how net price calculators can support their enrollment objectives. Asking additional questions not covered by the federal template, such as grade point average, class rank, and standardized test scores, gives institutions the distinct advantage of learning more about prospective students so they can efficiently and effectively target them. The broad swath of college administrators involved in NPC decision making have the opportunity to turn a federal mandate into an opportunity to attract the type of student they seek while improving and reducing their admissions and financial aid workload and, hopefully, encouraging more students to pursue a higher education.

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