Preparing for the Net Price Calculator

Preparing for the Net Price Calculator

Avoid potential pitfalls by taking these steps today

IN ROUGHLY TWO YEARS, HIGHER education institutions will be required to post a net price calculator on their websites to help students and parents determine how much they will likely pay to attend different colleges. While the regulation does not kick in until 2011, those familiar with the net price calculator say campuses should be taking steps today to avoid the many potential pitfalls that institutions could encounter when implementing it.

The net price calculator disclosure requirement is part of the Higher Education and Opportunity Act (HEOA), which reauthorizes the Higher Education Act. “The calculator shall be developed in a manner that enables current and prospective students, families, and consumers to determine an estimate of a current or prospective student’s individual net price at a particular institution,” the law states.

The law requires the U.S. Department of Education’s National Center for Education Statistics (NCES) to have developed a calculator template by August, but the department missed that deadline. As of press time in mid-September, department officials said they planned to release the template at the end of the month. Institutions will have two years after NCES posts the template calculator to implement their own calculators.

The Department of Education wanted to keep the template simple and usable for all Title IV institutions.

The HEOA specifically defines how a net price is determined. First, an institution must determine the cost of attendance (COA), defined as the average annual cost of tuition and fees, room and board, books, supplies, and transportation for first-time, full-time (FTFT) students. The institution must then determine the total need- and merit-based federal, state, and institutional grant aid awarded to FTFT students. This number is divided by the number of FTFT students receiving such aid to determine the average aid award. Subtracting the average aid award from the COA gives you the net price as defined by law.

At the National Association of Student Financial Aid Administrators’ 2009 National Conference in San Antonio, NCES officials, officials from the Association for Institutional Research (AIR), and NASFAA members discussed the calculator template and the issues and challenges institutions will likely face when creating their own calculators.

Elise Miller, program director for the Department of Education’s Integrated Postsecondary Education Data System (IPEDS), outlined the data elements that are required for the calculator template being developed by NCES. The template has eight data elements for students to enter: age, marital status, children, family size, number of family members in college, parent income for dependents (or household income for independents), living status (on campus, off campus, or with parents), and residency status (in-state or out-of-state).

The first three questions are designed to estimate a student’s dependency status, which is used to determine the student’s Expected Family Contribution (EFC). The next three questions are also designed to determine the student’s EFC. Approximating the EFC is crucial to estimating how much need-based financial aid the student is likely to receive. The final two questions are used to approximate the student’s COA.

Miller says that Education Department officials tried to keep the template simple because they didn’t want to discourage students by asking for too much information. She adds that they also wanted to keep it usable for all Title IV institutions?from the smallest cosmetology college to the largest research university. The goal is not to provide every student with a specific net price that he or she will pay, because that would be too complicated.

“We just want to break down the myth of sticker price and get beyond it,” Miller explains. “This is to give students some indication that they will not [necessarily] be paying that full price.” The Education Department took the same simple approach for the data that higher ed institutions must provide to populate the calculator. IHEs will be required to provide at least the data in the template, but they can add data to provide a more accurate estimate of their net price. At a minimum, each institution must provide the following data:

? Estimated total price of attendance

? Estimated tuition and fees

? Estimated room and board

? Estimated books and supplies

? Estimated other expenses (including personal expenses and transportation)

? Total estimated merit- and need-based grant aid

? Estimated net price (price of attendance minus grant aid)

Administrators will need to use data from their own systems to calculate the numbers to be entered into these tables. Miller encourages institutions to customize their calculators. “We approached this thinking that we’ll lay out the basics and it is in your institution’s best interest to customize this as much as you can afford and have time to,” she says.

Mary Sapp, assistant vice president for planning and institutional research at the University of Miami, predicts that institutions will likely encounter challenges when implementing the net price calculator and offers steps institutions can take now to ensure they are prepared.

The first step is to get the word out. After the Education Department releases the template, institutions will have only two years to develop policies and procedures to test, implement, and update their calculators. Financial aid administrators need to make sure the appropriate departments are aware of the requirements and the deadline so they can collaborate to successfully implement their school’s calculator.

Second, these departments will also need to reach some preliminary decisions, including what calculator will be used. Institutions have three options: use the template issued by the Education Department, customize the template, or use a calculator developed by an outside organization (several organizations are currently developing calculators that will comply with the law).

Sapp says each option has its benefits and drawbacks. For example, using the template will likely be the easiest and cheapest way to comply, but it is unlikely to capture the unique factors that dictate an institution’s net price because it is designed to accommodate a broad range of institutions.

Third, Sapp and others involved with developing the template encourage institutions to test their data in the calculator template so they are not surprised by the results. Albert Hermsen, director of financial aid at Wayne State University (Mich.), recommends using recent institutional data, putting it in the template, and looking at the highs and lows and the distribution of students. This will help administrators discern if their calculator fits the institution’s COA and financial aid policies and what factors?possibly athletic aid or outside scholarships?throw off the calculator.

Testing can also help administrators decide what data their institution should use to provide an accurate net cost for students and families. A fundamental challenge institutions face is providing a net cost estimate for future years. If you use data from the past year, it may provide inaccurate net cost estimates because of cost and/or aid changes from year to year. Institutions need to develop policies and procedures to accommodate annual increases in tuition and aid, as well as any changes to financial aid and tuition policies.

Schools must balance simplicity with accuracy to find a happy medium.

Those considering a custom calculator should consider several issues to ensure that their calculator fits the school’s goals and policies. Schools must balance simplicity with accuracy to find a happy medium. A calculator that is too complex could discourage students and increase the administrative cost of maintaining it. A calculator that is too simple may not provide an accurate net cost estimate.

“There is a tradeoff between accuracy and complexity,” says Robert Collins, vice president of student financial aid at the University of Phoenix. “You need to balance the way that you present this to students.”

Institutions may also need to omit some groups, such as athletes and employees, that will distort the net cost estimates, says Sapp. She adds that institutions will save themselves many headaches by providing an accurate assessment of a student’s likely net cost. She recognizes that students won’t receive exactly what the calculator estimates but notes that student complaints have not been an issue for institutions that already have calculators.

Sapp’s comments illustrate the importance of a clearly worded disclaimer that is prominently displayed with the calculator. The law requires a minimum disclaimer, but institutions should consider customizing this to ensure students understand the limits of the calculator.

Haley Chitty is director of communications at NASFAA, www.nasfaa.org.


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