Understanding the Net Price Calculators of Colleges

The best things in life are free, but most things are purchased at a fixed price. Curiously, one of the most important purchases in a person’s life, a college education, has a price that’s unknown until the end of the purchasing process.

The cost of attending a college may range from zero to over $100,000 per year. Exactly where it is within this range is often clouded by the college itself. This approach may be a factor of the unrelenting rise of college tuition, which has increased at twice the rate of inflation over the last twenty years.

College administrators have two objectives. They want to maximize revenue and maximize their school’s academic reputation. Some applicants are ideal from both perspectives. They have excellent academic records and are willing to pay full price. However, many applicants are qualified for admission but can’t afford full price, so they hope to obtain enough financial aid to attend. But how much do they need?

Revealing the Price of College

The FAFSA Simplification Act of 2020(the Act) not only streamlined the FAFSA process, it also introduced regulations to make the costs of college more transparent to families. Colleges must now publish their Cost of Attendance (COA) on their website. This is the “sticker price”of a college that includes tuition and fees, books, room& board, and other expenses before taking financial aid into account.

What’s even more useful to families than the COA is the Net Cost of Attendance (NCOA). This is the price that a student will pay after financial aid is taken into account. Eligibility for need-based Federal programs is transparent through the FAFSA process, but merit-based awards from a much larger source of funds — the institutional resources of colleges — are not known until the spring. Therefore, this important information isn’t available to guide the selection of target colleges during the fall, when this guidance is needed.

Net Price Calculators

To help estimate NCOA, the Act also stipulates the inclusion of a Net Price Calculator (NPC)on every college’s website. The NPC is intended to mitigate the problem that arises when a family can’t anticipate the NCOA during the fall application season.

Many colleges have developed their own NPC’s. Others use an NPC template from the College Board or elsewhere and modify it to suit their preferences.

Using a Net Price Calculator

After a prospective applicant clicks through a college’s website to the NPC, they must acknowledge acceptance of its limitations. For example, below is the preface to the NPC of the Catholic University of America in Washington DC, a four-year private institution with an undergraduate enrollment of 3,011 students.

“Please read. This calculator is intended to provide estimated net price information (defined as estimated cost of attendance including tuition and required fees, books and supplies, room and board, and other related expenses less estimated grant and scholarship aid) to current and prospective students and their families based on what similar students paid in previous years.

 “By clicking below, I acknowledge that the estimate provided using this calculator does not represent a final determination, or actual award, of financial assistance, or a final net price; it is an estimate based on cost of attendance and financial aid provided to students in a previous year. Cost of attendance and financial aid availability change from year to year. The estimates shall not be binding on the Secretary of Education, the Catholic University of America, the District of Columbia, or the student’s state.”

A simple interpretation of this preface is, “Don’t blame us if this turns out to be wrong.” The NPC’s of all colleges include similar disclaimers. Colleges are only obligated to engage ina good faith effort regarding the accuracy of their NPC output.

Colleges also provide additional information about their NPC. Catholic University states the following:

As you use the calculator, please remember:

1. This is not an application for admission or financial aid.

2. The results will only be as reliable as the data you provide.

3. The net price calculator will only give you an estimate of your net price and aid eligibility. The financial aid office has the final word on your financial aid award.

4. Federal Work Study estimates are not funds that reduce direct costs but do so in the calculation as a Federal aid program.

5. You must complete the Free Application for Federal Student Aid (FAFSA) as soon as possible after October 1st of the year before you plan to attend.

After agreeing to the disclaimer, another click takes the user to the college’s NPC landing page. Among other things, this page includes information about average net prices in past years. Below is the information provided by Catholic University:

“Over the past three years, the average cost for first-year students to attend Catholic University was $33,492. Merit-based academic scholarships have ranged from $13,000 to $30,000 and need-based grants have ranged from $1,000 to $40,000. In 2020-2021, 95% of our full-time beginning undergraduates received grant or scholarship aid.”

The Accuracy of NPC’s

Many colleges strive to make their NPC’s as useful as possible, but some colleges provide an NPC not because they want families to understand their financial aid process, but because they are obligated to do so by federal regulations. To comply with these regulations, an NPC need only do the following:

• Factor in the COA, which includes tuition, fees, books, room& board, estimated off-campus living expenses, and other costs.

• Ask questions regarding the student’s dependency status and their expected Family Contribution (EFC) from the FAFSA. (Note: EFC will be changed to Student Aid Index (SAI) in the 2024-25 academic year.)

• Include median amounts of grant and scholarship aid awarded to full-time, first-time degree-seeking students by ranges of EFC.

Colleges are free to develop their NPC’s as they see fit as long as requirements are met. They all include disclaimers like the one above for Catholic University. Few NPC’s disclose the assumptions that underlie their calculations.

To be effective, an NPC needs to ask in-depth questions about family finances and the student’s academic record. Some colleges are conscientious about this but others are not. A study by the University of Pennsylvania found that the number of questions on college NPC’s ranged from 8 to 28. The more questions asked by an NPC, the more accurate the output is likely to be.

College can be discouragingly expensive. As a result, some college administrators take the approach that it’s in their school’s best interest to provide an NPC that, despite actual costs, encourages parents to believe that they can afford the school. Although they comply with requirements, these administrators give families the minimum of useful information because they want to maximize the number of applications that they receive. A high number of applications results in a lower admission rate for the college because the number of freshman seats available tends to remain steady. This causes the college’s ranking in U.S. News & World Report and other publications to rise, which benefits the college and the administrators.

Families Should Be Wary of NPC’s

Families should not use NPC’s their only source of information about NCOA’s. They should conduct their own research before applying to a college if affordability is an issue. There are free resources such as the Common Data Set, Dataverse, TuitionFit, College Aid Pro, and College Scoreboard that are helpful.

As noted above, families should understand that some colleges prefer that their NPC provide only limited value. Distinctions between colleges that develop their NPC conscientiously and those that don’t are noted below:

1. Colleges that approach their NPC’s conscientiously include up-to-date, accurate data; others use old data.

2. Colleges that approach their NPC’s conscientiously use detailed merit scholarship information on undergraduates; others don’t ask enough questions about the student’s academic record to be able to do so. These colleges imply that the probability of receiving merit aid cannot be forecast, which misleads families into being optimistic. This allows the college to retain complete discretion in awarding their funds.

3. Colleges that approach their NPC’s conscientiously mimic the FAFSA by asking extensive questions about family finances; others do not ask such questions.

4. To further complicate matters, every college NPC is unique, even those based on the same template. This makes it difficult for families to compare NCOA’s on an “apples-to-apples” basis.

In recognition of the variance in NPC quality, the U.S. Education Department has committed to developing a standard methodology for NPC’s so that they all provide the same high quality information. No date has been set for its release.

Summary

NPC’s provide only a general estimate of a college’s NCOA. Even the best of them don’t produce an unerring forecast. The NPC’s output will rarely match the actual NCOA that is sent to successful applicants in Award Letters, but it should be reasonably close. Despite these shortcomings, a college’s NPC is useful to families because it provides insight into its pricing model and affordability.