By Aaron Anthony and Lindsay Page
The best way to determine how much you need to pay for college is by not relying on the sticker price. Instead, you have to rely on the net price of a college, which is often much lower. This is because the net price tells you how much you have to pay to attend a particular school after you get your financial aid.
One way to speed up the calculation of a school’s net price is to use an online tool called net price calculator. As the name suggests, a net price calculator is meant to give you a better idea of the actual price you have to pay to go to a particular college. The net price calculator does this by providing a more individualized price estimate based on your financial situation or that of your family.
In a peer-reviewed study in 2021, we found that prices determined by net price calculators vary an average of $ 5,700 per student for students from families with identical or similar economic situations. This means that the price determined by a net price calculator can be offset by plus or minus $ 5,700. This is quite significant because – over a four year period – it adds up to $ 22,800 and can determine if and how much you should borrow in student loans.
Differences in calculators
Some net price calculators are more user-friendly that others.
Some of them ask students to provide financial information difficult to access. For others, calculators can provide information on the cost of participation – as well as information on grants – which could be obsolete.
Since not all net price calculators work the same, it can also be hard to compare prices of different schools.
The US Department of Education provides a net price calculator template. It doesn’t require a lot of information, and most student users can provide the information themselves.
There is a bill in Congress that seeks to improve net price calculators. it’s called Net Price Calculator Improvement Act.
Introduced in April 2021 by Senator Charles “Chuck” Grassley, a Republican from Iowa, the bill would create a minimum set of requirements for net price calculators. It would also allow the US Department of Education to create a universal net price calculator that would allow students to answer a series of questions and obtain net price estimates for multiple schools.
The bill has only one 3% chance of becoming law, according to a website that rates bills based on their chances of being passed.
The Federal Net Price Calculator template requests information about a student’s household income. This is to be reported in increments of $ 10,000 ranging from $ 30,000 to $ 99,999. It also asks you how big your family is, if you plan to live in a college dorm or off campus, and how many family members are in college. This in turn allows the federal net price calculator model to generate identical financial aid estimates for similar students attending the same post-secondary institution. However, the actual aid allocations can be very different.
Looking for a fix
Since determining financial assistance is not easy to do, we identified three simple changes that would make the Federal Net Price Calculator model more accurate.
1. GPA in high school
Although many colleges and universities provide merit aid – mostly scholarships – the current model does not ask for any academic information. A simple change, like asking students for their high school GPA, could help better forecast merit-based grants. On the user side of the calculator, students would simply enter their GPA. At the back, where colleges enter their help information, colleges could set GPA requirements for students to get various scholarships offered by the school.
2. Timetable for the request for financial assistance
Different colleges have different deadlines for financial help from within. If the net price calculators could capture the date a student plans to apply for financial aid, the calculator could include only the aid that the student would be entitled to. For example, if a student submits an application after a college institutional aid deadline but before a state or federal deadline, the school’s calculator will only include state and federal aid. in the net price estimate.
3. Expanded income bracket
Current income categories cap at $ 99,999, which means that a family earning $ 100,000 is treated the same as a family earning 10 times that amount. An additional option of $ 100,000 to $ 150,000 would help distinguish upper middle income families from upper income families. According to Table A-2 on this census website, 15.3% of the 129.9 million households in the United States – or 19.9 million households – have incomes between $ 100,000 and $ 150,000.
The average undergraduate student in a family with a family income between $ 100,000 and $ 150,000 receives over $ 4,400 in grants. It is according to a National Post-Secondary Student Assistance Study from 2016 – the most recent data available.
Our study included 7,600 students at 900 different colleges and universities. We had an equal mix of public and private colleges.
We found that the information gathered on the current version of the Federal Net Price Calculator model accounted for 70% of the variation in actual scholarship grants for students attending the same university. In other words, the inputs these calculators need can amount to 70 cents of every dollar of aid given.
The changes we are proposing may help net price calculators to better estimate aid for similar students. With these additions, we found that the information used by net price calculators predicted 86 cents of every dollar of aid given.
Even if these changes were adopted, there would still be a lot of variation in the prices determined by the net price calculators. The variation changes depending on the type of college in question. For example, in private institutions lasting four years, the amounts varied by almost $ 11,000. In contrast, in community colleges it was around $ 2,400.
Taking these numbers into account, a federal net price calculator model could also help potential students estimate the high and low ends of their expected scholarships.
The changes we offer are simple to implement and only require basic information from student users. They also allow for a universal federal model that colleges and universities can adapt to their own financial aid allocation processes.
As Congress contemplates legislation to improve the look and function of net price calculators, the ease of use of the tool is one of the most important aspects to consider. Choosing a college is one of the most important financial decisions that students and their families will ever make. More precise and easy-to-use tools should make the decision easier than it would otherwise be.