The True Cost of Bad “Cost of Attendance” Estimates

By Celeste Middleton

What Does “Cost of Attendance” Mean?

For students choosing a college, the cost of attendance estimate (or “sticker price”) provided by their college or university is at the center of a lot of important decision-making. It’s a number that tallies up nine months’ worth of tuition and fees, books, school supplies, transportation, housing, food, healthcare, and other expenses that make up an undergraduate budget. This estimate is used in concert with the student’s Free Application for Federal Student Aid (FAFSA) to determine how much financial aid the student is eligible to receive. Students may choose to accept their entire financial aid package, or may only accept part based on a series of personal calculations about their future spending and employment. They may perceive some schools as affordable and others as too pricy; they may over-borrow and end up with excess student debt; or they may receive less financial aid than they actually need to make it through the school year. What if students are basing their financial, academic, and personal decisions on a bad estimate?

What Are Schools Required to Do? What is Missing, and Why Does it Matter?

The Department of Education mandates that colleges and universities provide these estimates to students. It also requires schools to include a “net price calculator” on their websites, a tool that allows students to enter information about their financial situation and living choices (such as whether they plan to life on- or off-campus) in order to receive estimates better tailored to their circumstances. The guidance in the Department of Education’s Federal Student Aid Handbook is incredibly vague when it comes to how colleges should calculate these cost of attendance estimates, though. It outlines allowable and non-allowable costs, and includes examples of common scenarios involving Pell Grants and other funding sources. However, the only reference to methodological concerns is as follows (emphasis added):

There are a variety of methods to arrive at average costs for your students: periodic surveys of your student population, assessing local housing costs or other pertinent data, or otherwise use reasonable methods you may devise which generate accurate average costs for various student cohorts.

What constitutes a “reasonable method”? How often should student surveys be administered, and are they required to be conducted on a representative (not just convenient) sample of the college’s student population? In assessing local housing costs, should housing data be used from the city, metropolitan area, or county? Should data on housing and other living costs be standardized from school to school? The National Association of Student Financial Aid Administrators (NASFAA), a membership organization for financial aid professionals, publishes best practices for its members about estimation methods and data sources. However, variation in indirect cost estimates from multiple colleges in the same city or metro area suggest that the federal guidance and NASFAA best practices do not necessarily produce consistent estimation. Financial aid administrators and staff ultimately hold a great deal of discretion in determining estimation methodology.

What if, faced with rising tuition and fees they cannot control, financial aid offices opt to control that all-important total sticker price by generating lower estimates of indirect costs such as housing, food, and health care? Though financial aid officers insist they aren’t gaming the numbers, data from 2011-2014 show that, while published tuition and fees increased by 4% at four-year schools, estimates for other components of the cost of attendance estimate fell during the same time period. It’s a stretch to believe that modern advances like online textbook ordering could fully explain that trend. Yet while tuition and fees are typically governed by relatively straightforward and transparent processes, methods of estimating indirect costs remain opaque.

This is particularly troubling because indirect costs account for more than 60% of the cost of attendance at four-year public schools, and about three-quarters of the cost of attendance at community colleges. If students rely on an underestimated cost of attendance when making a loan amount decision, they may later find themselves forced to work longer hours, skip meals, or otherwise make choices that interfere with their ability to make progress towards a degree. This risk is particularly high for students who enter higher education with limited income and resources. On the other hand, students at colleges that overestimate the cost of attendance could be saddled with unnecessary debt.

Methodology aside, how should “accurate average costs” be defined? Does a single arithmetic average give students and parents the information they need to make informed financial decisions? It doesn’t take statistical training to imagine that students and their families would benefit from easily-digestible information about the range and variance of actual attendance costs, not to mention some basic transparency about estimation methods. The Department of Education does have a website with affordability information such as the schools with the highest and lowest net prices, but comparisons between unstandardized estimates may lead students to make unfortunate, inherently flawed choices.

Measuring Misestimation in Living Costs

The Wisconsin HOPE Lab, a research unit at the University of Wisconsin-Madison focused on equitable outcomes in postsecondary education, published a paper earlier this year that demonstrates how common it is for schools to publish living-cost amounts that might not meet a reasonable person’s definition of “accurate.” The authors devised their own estimation method, using standardized data for measures such as county-level cost of living estimates (based on the MIT Living Wage Calculator), Department of Housing & Urban Development 50th Percentile Rent Estimates, and the Bureau of Labor Statistics Consumer Expenditure Survey. After calculating these estimates for 6,258 schools, they compared their estimates with the published living-cost allowances for those same schools in the 2013-2014 academic year.

They found that colleges located in smaller cities, rather than urban or suburban areas, tended to provide higher living-cost allowances, as did colleges located in counties with higher poverty rates. The authors suggest that this could be interpreted as evidence that these schools are trying to help needier students finance their education. Colleges with more resources — those with fewer Pell Grant recipients, and larger schools — tended to do a better job of calculating living-cost allowances, as measured by the size of the difference between their published allowance and the researchers’ estimate. The analysis also showed a troubling trend of colleges setting different living allowances for different compositions of student populations, based on factors like race/ethnicity and family income:

…our findings that lower percentages of minority students and higher average family incomes were associated with somewhat higher reported living-cost allowances also raise concerns about equity. If more advantaged students are allowed to borrow more money to cover their personal lifestyle choices than similarly qualified low-income students because of the college they attend, it can affect the types of experiences that students can have while in college.

What Can Be Done?

The authors of the HOPE study recommend stronger Department of Education guidance for estimation methods, though this seems unlikely given Secretary of Education Betsy DeVos’s priorities around student financial aid protections. The paper notes that NASFAA guidance promotes the use of student surveys, which are typically not representative of the larger student population, over standardized data — and that the organization’s guidance “conflates necessary expenditures with reported costs.” This relates to an ongoing debate around living costs and students’ agency in lifestyle choices. On one hand, if affluent students respond to their colleges’ cost-of-living surveys with reports of high spending in areas such as food, parking, and entertainment, living-cost allowances could reflect more spending than is necessary or appropriate for other students. However, the idea that students’ skimpy budgets should force them to eat cheap and unhealthy meals is not particularly palatable. Last year, a survey of 9,000 students attending University of California institutions found that 23% of respondents did not have consistent access to a “good-quality, varied and nutritious diet,” while 19% of respondents reported going hungry at times.

One practice the paper’s authors are absolutely certain about: An institution with multiple locations — such as a state university system or a for-profit college network — should not be using the same living-cost figure across its locations. The authors point out that several large for-profit networks, like ITT Technical Institute and the University of Phoenix, use the same allowances across all of their campuses. This problem isn’t just limited to for-profits, though. The Penn State system used the same room and board allowance across all 24 of its campuses, as did all community colleges in the states of Indiana and Kentucky.

The most effective push for more standardized estimation may come from the financial aid professionals themselves. A NASFAA working group recommends “more standardization across institutions” for cost of attendance estimates, as well as multiple data sources and institutional transparency about what costs are included in these sticker prices. More detailed recommendations from this group will be included in a future report by the NASFAA group.

How Do Public Colleges & Universities Stack Up?

The implications of misestimated sticker prices are particularly important for public colleges and universities, which face additional political and public scrutiny on top of the competitive pressures that apply to all colleges across the country. The aforementioned HOPE study’s authors found that, when they modeled living costs based on students’ age, public four-year schools were more prone to overestimation: 29% of the colleges and universities examined published living-cost allowances 20% above the authors’ estimates. An additional 30% of for-profit schools published living-cost allowances 20% below the study’s estimates. In total, nearly half of the public, private, and for-profit schools in their data set published living-cost allowances that were more than 20% higher or lower than the authors’ estimates. Neither overestimating or underestimating is good for students, but the trend among public colleges and universities suggests that financial aid officers at these institutions may purposely err on the side of ensuring that all students are able to access enough aid.

Curious about how published living-cost estimates for a specific public university or college compare to the HOPE estimates? Explore four-year public institutions in selected states using an interactive map I made:

For the record, UC Berkeley does a relatively good job, only underestimating by $445.

Note: Data points were pulled from the map-based visualization tool in the Chronicle of Higher Education’s piece on the subject. The bubble for each college or university has been resized to represent the size of the school’s living-allowance “misestimate” but is not strictly to scale.

Celeste Middleton is a Master of Public Policy candidate (‘18) at the Goldman School of Public Policy, and serves as Executive Editor for the Berkeley Public Policy Journal. She is a social policy generalist and Texas ex-pat with six years of prior public sector experience. Celeste currently works as a Graduate Student Researcher for the Center for the Study of Child Care Employment at UC Berkeley’s Institute for Research on Labor and Employment.