The best way to figure out how much you have to pay for college is not to go by the sticker price. Instead, it’s to go by a college’s net price, which is often much lower. That’s because the net price tells you how much you have to pay to attend a particular school after you get your financial aid.
So why would anyone go by the sticker price when they could go by the more accurate net price? The main reason is that the net price is often unknown until after you get a college offer letter. These offer letters spell out how much financial aid you can expect.
One way to speed up how fast you can calculate the net price for a school is to use an online tool called a net price calculator. As its name suggests, a net price calculator is meant to give you a better sense of the actual price you have to pay to go to a particular college. The net price calculator does this by providing a more individualized price estimate based on you or your family’s financial circumstances.
In a 2021 peer-reviewed study, we found that the prices determined by net price calculators vary by an average of US$5,700 per student for students from families with the same or similar economic situations. That means the price determined by a net price calculator can be off by plus or minus $5,700. That’s pretty significant because – over the course of four years – that adds up to $22,800 and can determine whether and how much you need to borrow in student loans.
Differences in calculators
Some net price calculators are more user-friendly than others.
Some of them ask students to provide financial information that is hard to access. For others, the calculators might provide cost of attendance information – as well as grant aid information – that could be outdated.
Since all net price calculators don’t work the same way, it can also be hard to compare prices from different schools.
The U.S. Department of Education provides a free net price calculator template. It doesn’t require that much information, and most student users can provide the information on their own.
There’s a bill in Congress that aims to improve net price calculators. It’s called the Net Price Calculator Improvement Act.
Introduced in April 2021 by Sen. Charles “Chuck” Grassley, a Republican from Iowa, the bill would create a minimum set of requirements for net price calculators. It would also allow for the U.S. Department of Education to create a universal net price calculator that would have students answer one set of questions and get net price estimates for several schools.
The bill has only a 3% chance of becoming law, according to a website that scores bills based on their chances of being passed.
The federal net price calculator template requests information about a student’s household income. This is reportable in increments of $10,000 that range from $30,000 to $99,999. It also asks what your family size is, whether you plan to live in a college dorm or off-campus and how many family members are in college. This in turn allows the federal template net price calculator to generate identical financial aid estimates for similar students attending the same postsecondary institution. However, actual aid awards may be very different.
In search of a fix
Since figuring out financial aid is not easy to do, we identified three simple changes that would make the federal net price calculator template more accurate.
1. High school GPA
Even though a lot of colleges and universities award merit-based aid – basically scholarships – the current template does not request any academic information. A simple change like asking students for their high school GPA could help better predict merit-based grants. On the user-facing side of the calculator, students would just enter their GPA. On the back end, where colleges enter their aid information, colleges could set up GPA requirements for students to get various scholarships offered through the school.
2. Anticipated financial aid application timing
Different colleges have different deadlines for financial aid from within. If net price calculators could capture the date when a student plans to apply for financial aid, the calculator could include only aid the student would be eligible to receive. For example, if a student submits an application after a college’s institutional aid deadline but before a state or federal deadline, then the school’s calculator would include only state and federal aid in the net price estimate.
3. Expanded income bracket
The current income categories top out at $99,999, meaning that a family earning $100,000 is treated identically to a family earning 10 times that amount. An additional option of $100,000-$150,000 would help to distinguish upper-middle-income families from upper-income families. According to table A-2 on this Census website, 15.3% of the 129.9 million households in the U.S. – or 19.9 million households – have incomes between $100,000 and $150,000.
The average undergraduate student from a family with a household income between $100,000 and $150,000 receives more than $4,400 in grant aid. This is according to a National Postsecondary Student Aid Study from 2016 – the most recent data available.
Our study included 7,600 students at 900 different colleges and universities. We had an even mix of public and private colleges.
We found that information collected on the current version of the federal template net price calculator accounts for 70% of the variation in actual aid awards for students attending the same university. In other words, the inputs these calculators require can account for 70 cents of every dollar in aid awarded.
Our proposed changes can help net price calculators do a better job of estimating aid for similar students. With these additions, we found that the information that net price calculators use would predict 86 cents of each dollar in aid awarded.
Even if these changes were adopted, there would still be a lot of variation in the prices determined by net price calculators. The variation changes based on the type of college in question. For instance, at private, four-year institutions, amounts varied by nearly $11,000. By contrast, within community colleges, it was about $2,400.
Taking these figures into account, a federal net price calculator template could also help prospective students estimate high and low ends of their expected grant awards.
Our proposed modifications are straightforward to implement and require only basic information from student users. They also allow for a universal federal template that colleges and universities can adapt to their own financial aid award processes.
As Congress considers legislation to improve how net price calculators look and function, keeping the tool simple to use is one of the most important aspects to consider. Choosing a college is among the most consequential financial decisions that students and their families will ever make. More accurate and easy-to-use tools should make the decision easier than it would otherwise be.