The ‘confusing and complicated’ college financial aid game could change

According to experts, the main problem with financial aid is that students and their families are forced to make huge financial decisions about whether and where to apply to college with fairly limited information about how much they will have to pay. Colleges, meanwhile, are gathering increasingly detailed information about students’ families through sophisticated data analysis that allows them to make sensible calculations about how little financial aid they can offer to attract a student.

At a time when students are in record debt, this forces those without unlimited resources to make some really tough decisions. It also means that some students don’t even bother to apply to college.

“We have a pricing system in higher education that is so confusing and complicated that it turns people off,” said Phillip Levine, an economics professor at Wellesley College and an expert in higher education funding.

And yet, demographic shifts in the United States have led to a decline in the number of college-aged youth, which began to create a shift in the college market, worrying institutions and giving savvy students and families a competitive edge for the first time in decades.

The lawsuit was filed in federal court in Chicago on behalf of five former undergraduates who attended some of the schools named in the lawsuit. The complaint details how the group of colleges work together as part of an organization known as the 568 Presidents Group and develop a method they all use to assess how much students can pay, with the aim of giving students help. similar. offers.

Colleges are allowed to do this under federal antitrust laws because they are supposedly blind to need — they make admissions decisions without considering a student’s ability to pay. But the suit argues that some of schools have actually found ways to determine how much a family can pay. For example, if they see that a student’s family members have also attended school or made a large donation, they may assume that the student is wealthy and does not need as much money. ‘financial aid.

Establishments use sophisticated data analysis methods, called registration management, to predict how much a student can pay in order to admit enough full-salary students to make up the scholarships. The plaintiffs say this group of elite schools agree on a figure for each student, so they are not competing to offer that student the best price.

The lawsuit focuses on just one corner of the convoluted financial aid landscape. Unlike the elite institutions complained of, most colleges do not have large endowments, so they are under even greater pressure to balance their desire to admit a diverse class with their need to collect a certain amount of tuition fees for students.

This growing pressure has led virtually all schools to advertise a relatively high sticker price, which a small number of wealthy families pay, but then offer most students scholarships that are essentially just a discount. A recent survey private colleges have found that the average discount rate is 54%, which means many students pay less than half the list price. The survey found that 83% of all undergraduates received some form of scholarship from their school.

This complicated system often discourages low-income and first-generation students from applying, Levine said, if they lack experience with how the system works in the United States.

“The only number you tell them is the number they won’t have to pay, and they don’t even know that,” Levine said.

Another issue that complicates the financial aid process is the extreme complexity of the Federal Student Financial Aid form, also known as the FAFSA. The form asks detailed questions about a family’s income and assets and is extremely complicated for many families, especially those for whom English is a second language. During the pandemic, with less access to high school college counselors, many students simply didn’t bother to fill out the form or apply to college.

Financial aid scholarships are often one of the last pieces of information schools provide to prospective students, forcing those who cannot afford full tuition to wait until late spring to assess their offers, even if they applied early. Also, financial aid award letters can be difficult to understand. Some letters include loans, some don’t. Different types of loans have different repayment rules. Some aids have academic requirements. There are also government supports, like the Federal Pell Grant, which are income-tested.

Colleges, on the other hand, have access to not only the detailed financial information families provide on the FAFSA and other financial aid forms, but they are increasingly using sophisticated marketing agencies to attract students, as well as so-called enrollment management experts to help them determine how much aid to award.

These enrollment management companies employ data scientists to advise colleges, using data and algorithms, on how much aid they should offer. certain type of students to convince them to enroll. Higher-income students often do not need to be rewarded as much to be attracted, whereas attracting low-income students requires a greater financial investment from the college.

The basic calculation is “how much financial aid do you need to offer to enroll the class you want, but at the same time have enough tuition income to sustain your operations,” said Brett Schraeder, chief optimization officer. financial assistance to EAB, a national enrollment management company.

Enrollment management consultants say they provide an important service: helping schools determine who is willing to pay higher tuition fees that will subsidize low-income students.

Schraeder said such enrollment management strategies began to gain popularity after a previous antitrust lawsuit in the 1990s, when courts ruled schools could not coordinate on their financial aid strategies. Instead, schools had to find a way to compete for students without sharing any information. As computing and data analysis have become more sophisticated, the industry has grown.

Displacement from the United States demographic trends have put increased pressure on colleges to do whatever it takes to attract as many highly skilled, high-paying people students as possible to finance their operations. The number of young people is falling, and is expected to fall further, a trend that has created more competition between schools, especially non-elite schools. More than a million fewer students are enrolled in university today than before the pandemic.

As a result, more colleges have hired these sophisticated companies to help them target potential candidates.

“It’s no longer enough to be a good little college…in a nice city. You really have to understand, ‘OK, who is our market, who are our students?’ said Schraeder.

Kevin Carey, vice president of education policy and knowledge management at New America, a Washington, D.C. think tank, said schools are increasingly helping wealthier students as they find that even a small “merit scholarship” is likely to entice someone to attend. .

“Low-income students can be squeezed by this,” he said.

However, in response to skyrocketing tuition fees and greater awareness of the downsides of borrowing, families are beginning to recognize that they have more bargaining power over schools than in the past.

Many ask for more information about the return they’ll get on a given degree, said Jon Carson, founder and CEO of College Guidance Network, a virtual college counseling service.

In the past, Carson said, any college degree was a pretty sure ticket to middle-class life. Now, he said, some majors have much higher earning potential than others, and families are thinking about that.

“It’s not about finding you, you’re making an investment, and people have to be very clear about the return,” he said. “Consumers now see themselves as consumers because it’s such a big number, and it’s a new paradigm.”

Laura Krantz can be contacted at [email protected] Follow her on Twitter @laurakrantz.

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