How Colleges Mislead Families about the True Cost of Higher Education

U.S. colleges routinely give families misleading and even deceptive information in the financial-aid letters they send to potential students.

C oncealing the true costs of your services is no way to conduct an honest business. Imagine a bank, for example, that includes only a fraction of a mortgage’s costs on a homebuyer’s closing documents. Buyers would not tolerate such a lack of transparency.

And yet U.S. colleges routinely give families misleading and even deceptive information in the financial-aid letters they send to potential students. This lack of transparency makes it nearly impossible for families to find out the true amount they will pay for college (the figure known as a college’s net price).

Families remain uninformed of the net price of college because federal law does not require colleges to present financial-aid offers in a clear and consistent way. Higher education is largely exempt from the rules that apply to mortgages or credit cards.

Given the amount of money and debt involved, this is an unacceptable oversight. Financial aid to students is no small matter. The fiscal-year 2021 payout by the U.S. Department of Education for student financial aid through grant and loan programs reached nearly $112 billion. It’s high time for a transparent reckoning with — and accurate reporting on — the true costs of college.

The problem of colleges’ giving misleading financial information to families has been well known for many years. Twenty-five years ago, the congressionally created Commission on the Cost of Higher Education reported that “most institutions of higher education have permitted a veil of obscurity to settle over their financial operations,” while “parents are interested simply in what they will have to pay when their children go to college.” (One of us was the commission’s executive director.)

Now a new report from the U.S. General Accountability Office analyzes more than 522 financial-aid offers from a nationally representative sample of 176 colleges spanning the period from January 2021 to November 2022. As the federal government’s primary watchdog, the GAO evaluated student-financial-aid letters sent to families with information on federal and nonfederal grants, loans, and work-study options.

The GAO found that only 9 percent of colleges accurately report how much out-of-pocket money families will pay to attend these institutions. It also evaluated the colleges’ financial-aid offers against ten best practices compiled from recommendations made by the U.S. Department of Education and a separate Financial Literacy and Education Commission chaired by the secretary of the Treasury that included 22 federal agencies.

These best practices are grouped into two categories: ones that inform families about college costs, and ones that clearly detail the financial aid available. They urge colleges to list both direct costs (such as tuition and fees) and indirect costs (such as books and personal expenses), and to clearly distinguish between types and sources of aid. This is common sense: Non-repayable grants differ from loans that must be repaid, while work-study employment brings its own set of advantages and challenges.

The GAO report found that approximately 63 percent of colleges in their sample follow fewer than half of these best practices. No college followed all ten. Here are three other key findings:

• 41 percent of schools do not list a net price at all, leaving that crucial number up to families to calculate.
• Another 50 percent of schools understate the net price by excluding important costs or counting repayable federal loans as “financial aid.”
• Nearly a quarter of financial-aid offers don’t distinguish between grants (which don’t require repayment) and loans (which do require repayment).

Melissa Emrey-Arras, who led the work for GAO, summarized the findings by saying, “Colleges are not providing students the information they need. And if colleges don’t do that, students can’t make decisions that are consequential for their future.”

Invariably, the net effect of this lack of financial transparency is to make college seem more affordable than it is. This deception can lead to disastrous consequences for students. For example, the U.S. Department of Education reports that about 20 percent of student loan–borrowers are in default, going at least 270 days without a payment. More than a million student loans go into default each year.

Although many borrowers get their loans current, some backslide, with 25 percent who restored their loans to good standing defaulting again within five years. The effects of default include damaged credit ratings, losing access to other federal programs, employment problems, and collection fees that increase repayment costs.

On one level, there’s a simple solution to this problem: Universities ought to spell out the total cost of college — and be transparent about the types of aid available. Families and students have a right to know what a degree will cost prior to making a commitment that holds far-reaching ramifications for their financial futures. Since American universities seem slow to voluntarily adopt this basic standard, Congress would do well to consider legislation that requires that colleges follow the GAO’s list of best practices in the financial-aid letters they send to families.

Encouragingly, there appears to be broad bipartisan support for such solutions. In the House, Representative Virginia Foxx (R., Va.), chairwoman of the Committee on Education and the Workforce, and her colleague Representative Lisa McClain (R., Mich.), have introduced the College Cost Transparency and Student Protection Act to establish standardized terms, definitions, and formatting requirements for the required content of financial-aid offers. And in 2021 Senator Chuck Grassley (R., Iowa) introduced a similar proposal called the Understanding the True Cost of College Act, co-sponsored by three Republicans and five Democrats. From student-advocacy organizations to federal administrators, Americans recognize the problem and demand greater transparency from colleges concerning costs and financial aid.

But beneath this bipartisan consensus, a more fundamental problem lurks. Put simply, it’s not uncommon for institutions — nonprofit and for-profit — to resort to deception on pricing when they know they are touting a product that’s a mixed or bad deal for consumers. If an institution is offering a good product at a fair price, it doesn’t need the mandated requirements of congressional legislation to force it into being transparent and disclosing its costs honestly.

Thus, it should not be considered unreasonable to suggest that the real reason many universities fail to disclose the true cost of college isn’t just a matter of hazy accounting. Rather, the hazy accounting hints at an underlying concern that if families and students know what college actually costs, they’re likely to say, “Thanks, but no, thanks.”

No doubt that over the past 70 years, higher education has been the preeminent path towards professional success — even at the expense of other traditional working-class and middle-class pathways or alternative pathways. It has offered a mostly successful pathway to upward mobility for many Americans.

On the other hand, it has also left many unable to repay the student loans they carry with them after not completing college. For example, colleges graduate only about half of the students that they enroll. Those who leave school with debt and no degree are three times as likely as those who graduate to default on student loans.

Today we must confront the fact that much of higher education looks more and more like a bubble industry. Its costs have skyrocketed. Its administrative ranks and overhead have mushroomed. And its return on investment has plummeted. As it was with the home-mortgage market in 2006, parts of the higher-education industry rely increasingly on selling dubious financial products to unsuspecting and uninformed buyers, presenting them with what the GAO report calls “misleading and deceptive information.”

Increasingly, the American public is catching on to this fact. A new survey released in early 2023 by Populace, a Massachusetts-based nonprofit, shows that a majority (52 percent) of Americans believe that higher education is headed in the “wrong direction,” with only 20 percent believing it’s headed in the “right direction.” Nearly seven in ten (67 percent) of Americans believe higher education puts its own interests first, compared with those who believe it prioritizes students (9 percent) or the greater good (4 percent). This general unease about higher education recently led even the editorial board of the New York Times to lecture its readers that we should “see workers as workers, not as a college credential.”

It has been 25 years since the National Commission on the Cost of Higher Education called for higher-education institutions to provide consumers with “more useful, accurate, timely, and understandable information on college costs, prices, and the different subsidies that benefit all students.” The GAO report suggests that little has changed over 25 years. Forcing colleges to prioritize basic transparency in financial-aid letters would be a welcome reform, and bipartisan congressional legislation may remedy that problem.

But ultimately, discussions about the true cost of college must also address the bigger questions: Not just “What does college cost?” but “What are we paying for?” And, of course, “Is college worth it?” The more American families start asking those questions, the more likely they’ll be to cut through the deception to receive a real education.

Bruno V. Manno is a senior adviser for the Walton Family Foundation education program, former U.S. assistant secretary of education for policy, and former executive director of the congressionally created 1998 National Commission on the Cost of Higher Education. Iain Bernhoft heads the writing and communication department at American Philanthropic and teaches in the humanities program at Providence College.