Are Estimated College Costs Making the Student Debt Problem Worse?

Finance
Posted By Derek Johnson on June 9, 2016 at 10:12 am
Are Estimated College Costs Making the Student Debt Problem Worse?

Gaming out college costs ahead of time can be a tricky exercise. It’s a bit like trying to predict a monthly bill from your phone and Internet provider. There’s the sticker price you initially saw in advertisements, followed by the (typically higher) figure quoted to you by a sales rep when you sign up. Then, finally, there’s the even higher price you end up paying when you actually receive your first bill, stuffed with hidden fees, services and other costs you were never informed about. All of a sudden, that $40 to $50 monthly cost you initially budgeted for doubles in size, leaving you financially strapped.

Pinning down an accurate estimate for the cost of a degree at your chosen university is often a similar exercise in frustration. It’s not simply a matter of adding up tuition, room, board and book fees. A truly accurate assessment of a year’s worth of college costs must take into account a range of living expenses. As the federal government puts it on the Department of Education website: “[C]ost of attendance is not the bill that you may get from your college; it is the total amount it will cost you to go to college each year. [It] includes tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care.”

This estimate is one of the primary measures the government uses to determine how much federal aid a prospective student is eligible for. The problem is that beyond needing to take these costs into account, there is not much regulation or even guidance provided to universities for the best way to do it. As a result, these estimates might not always reflect the financial realities of attending a particular school.

“For those of us outside financial aid offices, it’s incredibly difficult to assess how accurate a school’s Cost of Attendance estimates reflect the needs of their particular students,” said Kim Dancy, education policy analyst for New America during a panel discussion on cost of attendance standards.

Different groups, different costs

Dancy pointed to studies by the Wisconsin HOPE Lab, as well as internal New America analyses that claim many universities routinely underestimate (and sometimes overestimate) these total costs. In 2014, researchers Robert Kelchen of Seton Hall University and Braden J. Hosch of Stony Brook University and HOPE Lab director Sara Goldrick-Rab looked at the cost of attendance estimates provided by 4,752 universities. Then, they compared these estimates to living expense data compiled from third-party sources like the MIT Living Wage calculator, rent data from the Department of Housing and Urban Development, food cost data from the Department of Agriculture and the Cost of Living index data from the Council for Community and Economic Research. What they found is that these estimates often conflicted with one another.

“About one-third of colleges are providing families with cost of attendance estimates that are at least $3,000 less than the amount we estimate the school will really cost,” wrote Goldrick-Rab and Kelchen in an op-ed for Time.com.

These disparities tended to fall disproportionally on students with off-campus housing (87 percent of college students in America either live off-campus or with their families), single parents and students from low-income backgrounds.

At some universities, off-campus students who live with their families aren’t given allowances for room and board, on the assumption that these students are receiving subsidization from their parents. While this is undoubtedly true for many students living at home, the HOPE Lab authors did find research conducted over the past four decades which suggests that, for a small minority, it might actually be the other way around. A study from the 1970’s found that “an estimated 10% of students who took the ACT reported that they contributed money to their parents to help them pay bills or provide for siblings.” These trends were particularly pronounced among Hispanics (29.4 percent) and African Americans (16.6 percent). A 2014 study found similar rates among Wisconsin college students.

The introduction of children complicates the situation further. Doctor Barbara Gault, vice president and executive director of the Institute for Women’s Policy Research said that single parents (and particularly women) also tend to end up on the short side of cost of attendance estimates, particularly around childcare. Gault’s organization has conducted a trove of research on the availability and affordability of childcare for college students. About one quarter of the 20 million-strong college students in America have children while they are enrolled. Over two-thirds (71 percent) are women, and about half (43 percent) are single mothers. This population will likely continue to grow as higher education enrollment strategies have in recent decades focused on recruiting older, non-traditional students who are more likely to have children.

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Student parents are also more likely to work full or part time jobs in addition to attending school, a reality that Gault says is typically not factored into a school’s calculus around cost of attendance measures.

“People come up with ideas like ‘oh,  [what about] online learning?’ The truth is, people can’t stay awake 24 hours a day. Those of us that have a kid, you know you can’t necessarily watch your kid while you’re doing anything else,” said Gault.

Making the problem worse?

The proper role and scope of federal student aid is something of a flashpoint in this debate. While there is a fair amount of evidence showing hidden or ancillary costs in the college experience, to what extent are universities and the federal student aid system responsible for combating a host of external socioeconomic issues that affect incoming students?

While upping the total amount a student is eligible to borrow may help in terms of meeting their immediate college costs, it also further widens the spigot of federal aid. Easier access to federal loans can often lead to over borrowing, something that has contributed to the collective $1.3 trillion in outstanding student loan debt in America. This dynamic can create a lose-lose situation for many universities. Cost of attendance estimates that are too stringent may leave students unable to pay for books or skip out on meals, while being too generous can leave the school open to criticism that they aren’t doing enough to combat sky-high student debt.

Critics of the current federal aid system in the political and policy arena contend that increased access to federal student aid has been one of the primary drivers of the student debt crisis. Former Republican presidential candidate and outgoing Senator Marco Rubio summed up this view during a February speech outlining his campaign’s education plan.

“One of the main reasons tuition rates are rising is that colleges know the federal government will continue lending students as much as they need in federally guaranteed loans,” said Rubio. “These hiked tuition rates effectively form a free subsidy for colleges and universities, which use the funds to finance a myriad of non-academic pursuits…that have little, if anything, to do with educating students.”

Presumptive Republican nominee Donald Trump has yet to release a formal higher education platform, but education advisor Sam Clovis outlined a series of proposals last month that include narrowing access to federal student aid for certain majors that don’t have clear pathways to good paying jobs.

Dancy and New America colleague Rachel Fishman advocated for a series of measures beyond simply increasing the total borrowing limit, including steering eligible students to enroll in existing social welfare programs like food stamps and even floated the “pipe dream” of a universal basic income. In general though, Fishman said they were reluctant to make recommendations because the overall complexity of the issue left any decision up to unintended consequences.

Jee Hang Lee of the Association of Community College Trustees said he did not see an easy answer and pointed to increased state investment in higher education and more granular research by universities when calculating cost of attendance subsidies as partial solutions. He emphasized that it will take more than simply raising the eligible amount of federal student aid.

“The federal government is not going to be able to do all of this,” said Lee. “The reality is that all the stakeholders [in higher education] have to come to the table and have a substantive conversation because this is hurting our students, this is hurting completion and we’re never going to get a Pell Grant that gets to $10,000 in the next two years.”

Derek Johnson
Derek Johnson is a writer, journalist and editor based out of Virginia. He received a Master’s degree in Public Policy at George Mason University and a bachelor’s degree in Communication from Hofstra University.

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