A Congressional Attempt to Cut College Costs

Two weeks ago, Congresswoman Virginia Foxx, Republican of North Carolina, introduced the College Cost Reduction Act in the U.S. House of Representatives. As suggested by its name, the 224-page bill responds to the general agreement across the political spectrum that college costs too much. The legislation’s stated goal is “to lower the cost of postsecondary education for students and families.” Will it work? Some of the proposed changes could help, but even those have shortcomings and need modifications.

The full bill contains three sections. The first focuses on transparency. Its provisions are intended to improve and extend the information available to students regarding college prices and other outcomes. The second section, on access and affordability, focuses on financial aid and loans. Among other measures, it would increase federal funding for financial aid through an expanded Pell Grant. It would also restrict federal-loan access to students and their parents. A final section on accountability includes several components, including risk-sharing provisions for institutions whose students cannot repay their loans.

To be sure, this bill contains many features that will generate controversy, but let’s focus on just the provisions that are consistent with the title and stated goal of lowering costs. Would they do what the bill sets out to do? Since knowledge of those costs is critical to the success of lowering them, the provisions that target transparency are also key.

The need to improve transparency is clear. A recent poll conducted by the Association of American Universities indicated that only 19 percent of Americans know that students from lower-income families pay less in tuition than students from higher-income families. In fact, only one in seven students attending four-year institutions pay the stated sticker price (technically known as the “cost of attendance”). Because of financial aid, everyone else pays less. Students certainly would benefit if they knew how much they would have to pay.

One source of confusion when it comes to cost is the inconsistency of financial-aid offers, which this bill seeks to rectify. Currently, when students apply to college and request financial aid, those admitted receive a formal statement of the amount they are being offered along with additional detail regarding anticipated costs, payment methods, and the like. Unfortunately, these letters are often confusing, inconsistent across institutions, and sometimes include misleading information. “Federal law doesn’t require colleges to include clear, standard information in all of their financial-aid offers,” explained a 2022 GAO report. “Congress should consider mandating that colleges do so.”

Many colleges have responded to these shortcomings already, voluntarily agreeing to a set of standards to address them. (I was a member of the technical advisory committee to the group that led this initiative). The recent House bill largely adds teeth to the effort, requiring colleges to satisfy a similar set of guidelines. To me, such a requirement is a no-brainer.

But we could do better. Consistency is helpful only to the extent that students understand the content. The details of these offers are often extensive and, for many, overwhelming. Following the voluntary initiative’s lead, the bill requires that colleges spell out the offer in considerable detail and in “plain language.” Students may benefit from the details, but they also need to know the bottom line — what is this college going to cost me? Providing summary information to simplify the details would be a valuable addition.

The problems of college affordability and transparency start long before acceptance letters and financial-aid offers are received. Aid offers come at the end of a long college-admissions process. Months or years before that, students need to better understand what their college options are or they will never make it to the point of receiving those offers. This bill recognizes the issue and requires the creation of a universal net-price calculator. Colleges were first required to introduce NPCs in 2011. The “net price” reflects the price that students are asked to pay after subtracting all “grant-based” financial aid (i.e., aid that does not require work or borrowing) from the sticker price. Students enter information on their families’ finances and other personal circumstances, and the calculator returns an estimated (but not binding) net price.

Unfortunately, the good intentions of the earlier legislation did not translate to successful practices. Many net-price calculators are complicated to use and sometimes even hard to find. Like formal financial-aid offers, net-price results across institutions are inconsistent. A universal NPC should help alleviate some, but not all, of these problems. It should at least facilitate comparisons across institutions and presumably should be easier to find.

Again, though, the potential downfall is the tool’s complexity. Many institutions ask an array of idiosyncratic questions designed to determine a student’s/family’s financial status, as one might expect. They may also ask for something resembling a college application, requesting various details regarding the student’s academic record. Then there are questions seeking students’ eligibility for state-specific financial awards. Finally, they may ask about other personal characteristics, like parental education or even gender and race/ethnicity. Would a universal NPC need to ask all these institution-specific questions? If so, there goes simplicity.

To be most useful, the universal net-price calculator should use a simple and limited set of universal inputs. A critical element of any calculator is its ability to quickly and easily indicate to students that a college’s sticker price is unlikely what they’ll have to pay. There is value in precision, but it is an impediment if it comes at the cost of simplicity. Specifying exactly what a universal NPC should include would be a valuable addition to the bill.

To directly reduce college costs, the bill’s main provision would double the maximum Pell Grant for students who have made significant progress toward a college degree. The Pell Grant is the main form of grant-based financial aid, and its current maximum value is $7,395. Doubling that amount would go a long way toward making college affordable for lower- and middle-income students. That provision has many supporters, including the Biden administration. In the formulation included in this bill, a student enrolled at a four-year institution, for instance, would be eligible for the doubled Pell Grant in their junior and senior years.

The goal of this proposed policy change is laudable. But reserving the extra funding for juniors and seniors undercuts its impact. Doubling the Pell Grant regardless of academic progress would significantly improve college access for millions of prospective students by broadening the set of institutions they can afford, or even whether they can enroll at all. Degree completion is important, but focusing specifically on that outcome puts the cart before the horse. Students can’t become grant-receiving juniors and seniors if they can’t afford to pay for their freshman or sophomore years. If we are going to double the Pell Grant, that amount should be available for all financially eligible students.

The bill also includes elements intended to provide incentives for colleges to lower their prices for lower-income students. Those double Pell Grants, for instance, would be available only to institutions that satisfy a “maximum total price guarantee,” which includes language limiting the amount those students could be charged. It also includes offers of additional funding to colleges through a “Promise Grant” program that is a performance-based system of awards. The details of that program are complicated, but receipt of the funds would also require that institutions satisfy the same price guarantee.

It is difficult to evaluate the impact of this proposed price-lowering incentive because not enough detail is provided to determine exactly how hard it would be for institutions to meet the pricing restrictions necessary to receive the funding. If the lost revenue was much greater than the additional funding, colleges would lose money and they wouldn’t take up the incentive. If they didn’t take up the incentive, it wouldn’t have any impact on costs — in which case, why bother instituting the incentive?

In the current legislative environment, it is difficult to imagine this bill becoming law this year. But we all know that legislative language gets recycled, so we are likely to see these provisions again. The pricing problems in the system are unlikely to go away on their own. College often costs less than students think it will, but they are still asked to pay too much, particularly lower- and middle-income students. Providing students with better pricing information and lowering their costs are critical steps to fix these problems. This bill’s provisions that focus on pricing transparency and Pell Grant expansion should be taken seriously.