Although the soaring cost of a bachelor's degree in the U.S. is often blamed for students racking up a record $1.6 trillion in debt, the problem may begin even before someone enrolls in college. The reason: Nine in 10 schools fail to provide Americans with an accurate estimate of the cost of attendance in their financial aid offers, according to a new government report.
That failure makes it difficult for students to compare competing financial aid offers, and could cause them to underestimate their actual costs. That can lead them to take on more debt than they initially expected, cut back on essential expenses like food to stay afloat or even abandon their education, according to the U.S. Government Accountability Office, a watchdog agency.
Murky sticky prices
The analysis of financial aid offers from 176 colleges around the country underscores the lack of oversight for what is often one of the biggest financial decisions in a person's life. Unlike other financial products — mortgages, auto loans and the like — there are no federal laws that mandate disclosures that colleges must make to students and their families when providing financial aid offers.
As a result, colleges frequently omit costs, underestimate expenses and even describe student loans as "awards."
"The total cost of attendance — a college's 'sticker price' — is essential for helping students and families determine whether a college is affordable," the GAO report noted. "Students cannot use their financial aid offer to assess the value of any aid they are offered in relation to the cost of college if it does not include or vastly underestimates a total cost of attendance."
The agency's findings were called "disturbing" by Senator Chuck Grassley, a Republican from Iowa, who said he is renewing a push for a new bipartisan law, called the "Understanding the True Cost of College Act," that would require higher-education institutions to use a uniform financial aid offer form.
"This GAO report is a big, red flag signaling that students are systematically at risk of being misled about the total cost of college," said Senator Tina Smith, a Democrat from Minnesota and one of the bill's co-sponsors, in a statement.
The GAO advised Congress to should pass laws requiring colleges to provide "clear and standard information that follow best practices" in their financial aid offers.
No way to comparison shop
Students often receive offers from multiple colleges during their application process, but the lack of standards for financial aid offers can make it difficult to "make informed financial decisions about how much they will need to borrow," the GAO said.
That, in turn, complicates a student's ability to compare competing offers from different schools. For instance, 4 in 10 colleges don't include a net price in their financial aid offers, which reflects the actual amount a student will need to pay to attend the institution — not only tuition, but also indirect costs like books, transportation, and off-campus housing and meals, the analysis found.
Half of colleges understate their net price by excluding some expenses and including loans that must be repaid as part of the financial aid package, the GAO found.
"Overall, 46% of colleges do not provide information on the costs of housing and meals," the report stated. "Additionally, many colleges do not itemize key indirect costs in their financial aid offers: 42% do not provide information on books and supplies and 53% do not provide information on other miscellaneous indirect expenses, such as transportation."
Loans deceptively described as "awards"
Other misleading tactics used by many schools involve describing loans and work-study programs as "awards," even though the former are financial products that eventually must be repaid and the latter represents labor that the student must perform. About 76% of colleges use the term "award" in their financial aid letters, according to the GAO.
"Students should know that loans and work-study are not 'awards' because they generally must be repaid or earned through employment, respectively," the report noted.
The reason for understating the true cost of attendance could be due to colleges' desire to "appear more affordable than their peers," the report said. While that may benefit the institution by giving it an edge in student recruitment, it harms students and their families. Underestimating costs can "confuse students by making a college seem less expensive than it actually is," the study said.
The GAO added: "College administrators we spoke with said that even modest unexpected expenses for indirect costs, such as for medical expenses or transportation, can lead students to experience a financial crisis that negatively impacts their ability to succeed in and complete college."
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