How Colleges Give Students a Flawed Sense of Living Costs

How much will it really cost to go to college? Institutions can provide students and parents with a pretty clear picture of what they’ll pay in tuition and fees, and they can give students living on campus the exact price of room and board. But those are pieces of a bigger puzzle. Other expenses — those associated with housing, food, health care, and transportation, for example — can be much harder to calculate.

Still, colleges are required to at least try. According to a federal mandate, they must tally those costs of living as part of an overall “cost of attendance” figure.

The problem is that their estimates can be wildly off base, leaving students with an inaccurate picture of the real price tag for their college aspirations. As a result, many students might find their budgets tighter than they expected, or take out more in loans than they need.

In a recent paper, the Wisconsin HOPE Lab offered an analysis of just how common errors in cost-of-living estimates are. The paper, whose lead author is Robert Kelchen, an assistant professor of higher education at Seton Hall University, compares living costs reported by colleges with the HOPE Lab’s own estimates for living costs in the counties where the colleges are located. Mr. Kelchen and his co-authors used a model that factored in regional costs for food, housing, health care, and miscellaneous items, while taking into account students’ likely ages and living situations.

For a student living off campus in a two-bedroom apartment and splitting costs with one roommate — a reasonably common scenario, since the majority of students live off campus — the HOPE Lab found that almost 41 percent of four-year colleges reported a cost of living that was at least 20 percent above or below the county estimate.

Living costs are an “underdiscussed” aspect of college affordability, as Zakiya Smith, a strategy director at the Lumina Foundation, told The Chronicle in 2014. But they play a large part in many students’ budgets: For the 2013-14 academic year, cost-of-living estimates exceeded the price of tuition at more than one in five colleges. An errant estimate can mean a difference of thousands of dollars per year, creating mismatches between prospective students and colleges they think they can afford. Students might take out larger loans than necessary, increasing their chances of defaulting. Unanticipated expenses can compromise their studies by forcing students to take on more part-time work or do without meals or textbooks. Students with fewer resources, who already struggle to afford college and are less likely to graduate, are disproportionately affected.

The College Next Door

Colleges within several miles or even a few blocks of each other can have cost-of-living estimates that vary by thousands of dollars. In Philadelphia, Drexel University reported a 2013 estimate of $18,365 in living costs for the academic year for a student living off campus. Less than half a mile away, the University of Pennsylvania reported $14,720 — a difference of roughly $3,500. The HOPE Lab estimated that a student sharing a two-bedroom apartment in Philadelphia County could expect to spend about $13,765 per year. (Cost of living can vary considerably within one county, but the HOPE Lab estimates do not account for those potential gaps. Also, some colleges don’t have to report cost of living because most of their first-year students live on campus.)

In other areas, like Boston and its surrounding suburbs, the HOPE Lab, which is supported by the Wisconsin Center for Education Research at the School of Education, University of Wisconsin at Madison, concluded that almost all colleges underestimated the cost of living by at least $2,000. Tufts University reported a living cost almost $5,000 below the study’s estimate for Middlesex County, Mass.

The opposite trend appeared in southern Florida, where all the colleges in a 30-mile stretch significantly overestimated the cost of living. Carlos Albizu University at Miami, an institution that serves many Hispanics, reported an off-campus cost of living of almost $31,000. The HOPE Lab’s estimate? Just over $12,500.

Colleges both over- and underestimated in Minneapolis. Capella University reported just over $5,000 in living costs for an academic year, and Walden University submitted a figure of over $18,000. That’s a wide range, and it illustrates an oddity of the process of estimating living costs. Both institutions are based in Minneapolis, but they are distance-learning giants, so the locations — and therefore the living costs — of their students vary greatly. Still, they are required to provide estimates because those calculations affect the amount of financial aid for which their students are eligible.

For traditional colleges in the Twin Cities region, the University of Northwestern at St. Paul reported almost $8,000 in living costs for an academic year, while Metropolitan State University provided an estimate almost $10,000 higher. Both institutions are in Ramsey County, where the HOPE Lab estimated living costs for a student sharing a two-bedroom apartment or house at $12,231 for nine months.

Disparate Estimates Span the Nation

According to the HOPE Lab, the Department of Education’s vague guidelines for producing estimates are the primary drivers of disparate cost-of-living figures. Those guidelines suggest that colleges research local living costs and conduct student surveys, but they don’t outline how to do so, leaving financial-aid offices to create and execute their own processes. The result is a different approach at each college.

Richard Shipman, director of financial aid at Michigan State University, says his office attempts to look at what students really experience. “We try to be pretty reasonable,” he says. To do so, his office uses a combination of student surveys, research on local rents and utility costs, and benchmarking with fellow Big Ten universities. It’s a process that seems to work, according to the HOPE Lab, since for the 2013-14 academic year, Michigan State has come within $200, or 2 percent, of the lab’s own estimate for Ingham County, Mich.

Michigan State has money to spend on creating an estimate; smaller colleges face more challenges. The HOPE Lab found more variation in estimates at such colleges, especially those with a greater percentage of Pell Grant students.

Would clearer regulations help colleges, especially smaller ones? “I’m sure that many of my colleagues would want to flog me for saying this, but I do” think so, says Mr. Shipman, who has over 40 years in financial-aid experience. “I really felt that when I looked at the rules, the way that they’re written, they’re just so broad, and there’s no cap, there’s no common sense to it.”

The current lack of clarity also means colleges can manipulate their estimates to affect their apparent cost when it comes to financial aid. Since cost of living factors in to students’ financial need, it sets the limit on the total amount of aid — including grants, loans, and campus-based programs — for which they’re eligible.

A college that underestimates can appear more affordable, thereby limiting the size of its loans. Conversely, a college that overestimates living costs can expand its pool of potential students, since needier candidates might then be able to borrow enough money to attend. The HOPE Lab found that higher county poverty rates correlated with higher cost-of-living estimates, indicating that colleges might be doing just that.

In their study, Mr. Kelchen and his co-authors recommend that the Education Department provide clearer guidelines for generating cost-of-living estimates, but for the time being, new regulations aren’t on the horizon

So how should students determine if they can trust cost-of-living estimates? A spokesperson for the Education Department commented, “We would suggest that a prospective student ask the institutions how the allowances were derived and updated.”

A Broad Impact

Because the conversation about college cost usually centers on tuition, and cost-of-living estimates are built into net-price calculators, few students and parents are likely to question the assumptions underlying the numbers. That could have serious consequences for students who end up struggling to make ends meet.

So how well do these assumptions match the realities students might find when venturing out on their own? Use the interactive map below to search colleges’ living costs and compare their estimates to those of the HOPE Lab.