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Meeting the Transparent Pricing Mandate

The latest on net price calculators and how institutions are stepping up
University Business, Mar 2011

The call for increased transparency in the college pricing and financial aid arenas is coming from many directions and is ringing louder and more clearly than ever. Institutional customers, students and families who have for some time been expecting more information, now want it more quickly and in terms they can understand easily and compare consistently across institutions. Colleges and universities have responded with tools such as scholarship calculators and financial aid seminars, as they themselves struggle with the transparency dilemma and the complexities associated with creeping discount rates and increasing prices.

And now the federal government has weighed in with its own demands, including a mandate for net price calculators. So how can colleges and universities best position themselves to meet these new demands and help themselves at the same time? The first step is to clearly understand the requirements and options.

According to The Higher Education Opportunity Act (HEOA), which was reauthorized and signed into law in August 2008, the Department of Education requires institutions to include a net price calculator (NPC) on their websites by October 29 of this year. The purpose is "to help current and prospective students, families, and other consumers estimate the individual net price of an institution of higher education for a student." To make compliance low-cost and convenient, the U.S. Department of Education (ED) has made available a NPC template. Institutions may use either the calculator developed by the ED, develop their own, or use a third-party vendor (see "Resources" box), as long as they include at least the same data elements found in ED's template.

The ED template not only provides a no-cost solution to enable colleges and universities to comply with the law, but it also has established a baseline blueprint from which enterprising higher education consulting firms and enrollment services providers can build a better mousetrap (of course, these are at a cost). Understanding the ED template can help institutions decide whether to use the ED template, build their own, or purchase one from an outside vendor.

Institutions will need to strike the right balance between the accuracy of "putting their best foot forward" in displaying appropriate results with the complexity of collecting so much information from prospective students that the process is tantamount to filing a FAFSA.

The focus of ED's template development was to keep it simple and usable for all Title IV institutions, from small proprietary institutions to large public universities. The simplicity is intended to keep the end-user engaged so as to complete all questions and see a result.

Net price, as defined in the HEOA regulation, is the price of attendance minus the average grant/scholarship aid from federal, state, and institutional sources for all first-time, full-time students receiving such aid.

The minimum input data elements from the ED template that must be included in any alternative solution are those that approximate the student's Estimated Family Contribution (EFC), such as income, number in family, and dependency status or factors that estimate dependency status. The minimum output data elements must include estimates for total price of attendance, tuition and fees, room and board, books and supplies, other expenses (personal, transportation, etc.), and total grant aid. In addition, it must include the percent of the cohort that received grant aid and any caveats or disclaimers.

It stands to reason that net price will overestimate for some groups of students and underestimate for others when only factors such as expected family contribution (EFC) and resident or commuter status are included.

Many four year institutions, both private and public, have already determined that they may not be well-served by the standard ED template. Schools with merit scholarship programs that do not take need into account, or that have differential need-based grant policies determined, in part, on desired characteristics of an incoming class, are those most likely to consider alternative NPCs. In addition, when loans and work-study programs are typically part of the larger affordability factor for a college or university, this information will best be portrayed in some way in the NPC output results.

Institutions will need to strike the right balance between the accuracy of "putting their best foot forward" in displaying appropriate results for subpopulations of students and the complexity of collecting so much information from prospective students that the process is tantamount to filing a FAFSA. Consider the response in a 2010 Student Poll survey conducted by the College Board and the Art & Science Group where students ranked various aspects of the college admissions process according to difficulty. According to the report, "Students and Parents Making Judgments About College Costs Without Complete Information," researching scholarship opportunities and filling out applications for aid, such as the FAFSA, were rated more difficult than either preparing for or taking the ACT/SAT. Completing an admissions essay was the only item rated more difficult than the scholarship search and aid application processes.

At last count, there were 11 companies or agencies (including the ED) offering a net price calculator. Of course, institutions can develop their own. What extra steps will campus officials take to make their case more compelling? Is it unreasonable to envision that a college, knowing its typical competitive set, might decide to display comparative information about competitor institutions such as retention rates, graduation rates, or National Survey of Student Engagement results alongside its own when the comparisons are favorable? Will NPCs have the effect of moving up the timing of the entire aid process? These and other questions remain to be answered, and each is suggestive of potential marketing strategies, advantages, and disadvantages.

For many colleges and universities, this is so much more than a financial aid issue. It speaks to an institution's market position.

When financial aid administrators from across the country gathered in Denver last July for the 2010 NASFAA National Conference, the NPC requirement was on the minds of many. During the three-day conference, nine sessions were devoted to the NPC. They were listed in two different interest tracks, Consumer Information/Customer Service and Department of Education.

Two vendors, the College Board and, each held two sessions. The second College Board session had to be moved to a larger room to accommodate the keen interest.

Among the other session presenters were financial aid practitioners, representatives from the Association of Institutional Research and the Voluntary System of Accountability and a director of college access initiatives from a large state university system. For many colleges and universities, this is so much more than a financial aid issue. It speaks to an institution's market position.

It is reasonable to expect interest in the NPC among prospective students and parents, too, for reasons already addressed, but also because of increasing concerns about the cost of higher education and decreasing savings habits. According to both the 2009 and 2010 CIRP Freshman Survey from UCLA's Higher Education Research Institute, which polls the nation's entering students at four-year colleges and universities, about 55 percent of first-year college students expressed at least "some" concern about their ability to finance college. The percentage hasn't been that high since 1971.

Where are institutions in the net price calculator process?

Heather McDonnell, the associate dean of financial aid and admissions at Sarah Lawrence College (N.Y.), chairs the College Board's financial aid standards and services committee, which served as an advisory council when the College Board was considering a net price calculator service. McDonnell then led her own college, which has the distinction of being the most expensive college in the country, through the decision-making process of which NPC to select.

Included in the conversation were staff from admissions, IT, and finance, plus the vice president of administration. "We tested five packaging scenarios that covered about 90 percent of our student population in each of the net price calculators we considered. The College Board calculator replicated the results closer than the other vendors' calculators each time," recalls McDonnell. She adds that, because Sarah Lawrence uses institutional methodology in its aid policies, it was not a surprise that the College Board calculator was more accurate for their purposes. The accuracy, customization capabilities, and similarities to the packaging technologies Sarah Lawrence already uses in the College Board's PowerFAIDS financial aid tracking system clinched the decision. At press time, Sarah Lawrence expected to roll out its calculator in February.

McDonnell sees the net price calculator as a great "truth-telling" mechanism regarding affordability at her institution and other colleges and universities in a way that will promote transparency. That, she says, is the real advantage of the new NPC regulation. Like others, she also has some concerns. Will the families who really ought to use the calculators to determine college affordability actually use them? And will there be a watchdog, in the event that some colleges try to "game the system"? McDonnell suggests the Student Aid Alliance as an appropriate group to assist with monitoring.

Tracy Manier, associate vice president and dean of undergraduate admissions at St. Edward's University (Texas), meanwhile, reports that her institution has, for a number of years, used their own aid calculator that provided sound estimates. However, as officials determined what it would take to retrofit their homegrown calculator to meet the new federal requirements, they decided it was best to use a third-party vendor. Their plan is to continue using the scholarship component of the St. Edward's calculator and expand its use to include scholarship calculations for transfers and international students.

Doris Constantine, associate vice president for student financial services, says it's important for St. Edward's to select a net price calculator that provides both merit- and need-based aid information, and they intend to choose a vendor that can accommodate a "launch" date in fall 2011 to coincide with the update of their own scholarship calculator for the next recruiting cycle.

While widespread surveys have not been conducted on where institutions are with implementing a net price calculator, the Council for Christian College and Universities' 2010 financial aid survey provides some insight. The NPC was listed in the "hot topic" section of the survey. Of the 69 responding institutions, 58 percent are planning to use a third-party vendor, 34 percent intend to develop their own, and 8 percent were still undecided. In addition, 7 percent had already implemented a NPC prior to fall 2010, 38 percent had or planned to have posted the NPC during the 2010-2011 academic year, and the remaining majority planned to launch in fall 2011 in time to meet the October 2011 deadline.

Emily Sinsabaugh, vice president for university relations at St. Bonaventure University (N.Y.), says her institution's early NPC implementation process, now complete, was a good strategic decision because of the school's generous scholarship and financial aid programs. "We immediately decided that the federal government tool was not going to meet our needs, so we looked at three commercial products and opted for the Noel-Levitz TrueCost Calculator. It more than met our needs for incorporating various merit- and need-based variables, and they enabled us to meet the aggressive timeline we set for ourselves," she explains, adding that the calculator was launched on December 20. She has already gotten positive feedback from parent users, and adds, "This tool will enable our staff to work more closely with families on the issue of financial aid as final college decisions are made."

Mary Piccioli is an enrollment management consultant for Scannell & Kurz, Emily Sinsabaugh of St. Bonaventure University (N.Y.), contributed to this article.