Statutory Definition of ‘Net Price’ Underestimates True Cost of College
The statutory definition of “net price” is flawed in several ways so the real, bottom-line cost of college is understated by thousands of dollars for many students, according to Mark Kantrowitz, publisher of Fastweb.com and FinAid.org. The net price is defined as the cost of attendance minus the average institutional or government grant for only first-year, full-time students.
“However, the average grant is calculated as the average among just the students receiving grants, not all students,” Kantrowitz writes in a student aid policy analysis. “As such it yields a definition of net price that is accurate only for grant recipients, not all students. Overall, only about two thirds of full-time undergraduate students receive any grants.”
The statutory definition of net price understates the real bottom-line cost by more than $2,500 (11% of the cost of attendance) on average, according to Kantrowitz’s estimates.
His analysis also found that the focus on first-year students yields misleading results for colleges that practice front-loading of grants, which involves awarding more grant money for a student’s first year and less in subsequent years. That also makes the results misleading for transfer students.
In addition, basing net price on the cost for in-state tuition recipients provides misleading information for out-of-state students.
Key findings of Kantrowitz’s student aid policy analysis include:
- Front-Loading Grants: When grants are front-loaded, the real bottom-line cost for first-time students compared to returning students becomes increasingly disparate the less selective the college.
- Income: Because many grants are need-based, the statutory definition of net price is less accurate for middle and upper-income students.
- Dependency Status: The student’s dependency status can also yield variable bottom-line costs. The differences are even greater when independent students are distinguished according to marital status and having dependents other than a spouse.
- Full-Time vs. Part-Time: The statutory definition of net price is based on full-time students, but part-time students are less likely to get grants than full-time students, and the average grants are lower.
- Room and Board: The statutory definition of net price yields differences in net price of as much as $6,112 on average for students who live on campus, off campus or with their parents.
Kantrowitz makes several recommendations to address these problems:
- The definition of net price should be based on an average grant calculated among all students, not just among the grant recipients.
- Colleges should report the net price for continuing students, as well as for first-year students. Alternately, the net price could be reported as an average among all undergraduate students, regardless of year in school.
- Public colleges should be required to report separate net price figures for in-state and out-of-state students or the correct figure for the student's status as an in-state or out-of-state student.
- Net price calculators must be modified to consider the following additional independent variables: dependency status, enrollment status and residence while enrolled.