Ending Surprise Bills in Higher Education

Last month, the House Education and Workforce Subcommittee on Higher Education and Workforce Development held a congressional hearing about one of the most frustrating aspects of the college-going process for students and families: surprise bills.

Higher education has a complex pricing model. Students often face high sticker prices that are not realistic representations of what they will pay. And once they receive their financial aid package, known as a financial aid offer, it can be hard to decipher exactly what the bottom line is and how to compare offers among schools. Then, when students receive their first bill, there can be a mismatch between what their offer said, and what they need to pay.

As chair Burgess Owens said during the hearing, “This is not how major financial decisions are made in other parts of our economy.” He’s right. Other major financial decisions, like buying a home, purchasing a car, and obtaining health insurance all come with easy to compare and legally required pricing disclosures. But colleges and universities have so far avoided the same requirements despite being one of the most expensive purchases students and their families will ever make. Federal action—a clear, standardized, and common financial aid offer—is needed to level the playing field nationwide. Notably, there is bipartisan momentum in Congress to make that kind of transparency a reality.

In 2018, New America and uAspire found, in a groundbreaking national study of thousands of financial aid offers, that nearly one third did not contain any information about costs. We also found that colleges and universities were using 136 different terms for the same federal loan, and 24 of those colleges and universities didn’t even label it as a loan.

Most offers mixed together student loans (and sometimes parent loans), grants and scholarships, and work-study into one lump sum, even though these sources of aid have very different terms and conditions. The worst practices made it seem like the student was getting a “full ride” to college when in reality their financial aid package maxed out their student loans and their parents would also have to borrow significant amounts.

The Government Accountability Office replicated our study in 2022, collecting a nationally representative sample of financial aid offers. Their findings affirmed ours, and found that some things had actually gotten worse for students and families.

Approximately 9 in 10 colleges either did not include net price—the amount the student would be expected to pay after scholarships or grants—or they understated it. This finding was particularly damning given that after the publication of our report the U.S. Department of Education issued guidance (still in effect today) telling institutions to follow a series of “best practices” for financial aid offers. These practices included minimum standards such as separating grants from loans and listing the full cost of attendance. GAO found that 63 percent of colleges followed five or fewer of these practices from the Education Department, and no college followed all of them.

While it is a challenge to accurately communicate cost and financial aid, given the pricing structure and myriad financial aid options, that’s not the driving reason why institutions aren’t communicating their aid and prices effectively.

Ultimately, colleges and universities have no incentive to be transparent about their pricing because doing so could result in lower enrollment and lower revenue. This puts institutions that seek to do the right thing and be transparent about their costs at a competitive disadvantage to those schools that obscure their numbers. It’s why self regulation, whether it be through historic codes of conduct from the membership organization of financial aid administrators, longstanding Education Department guidance, or transparency initiatives fail to move the needle meaningfully on transparency for students and families.

The result is that students and families feel rightfully bamboozled by colleges and universities. And that feeling has led, in part, to the rupture of trust between colleges and universities and Americans. Only about half of Americans agree that students can get a high-quality education after high school that is affordable, according to nationally representative survey data from New America. And 3 in 5 believe it is the cost of college that is the single main reason that stops students from enrolling or completing their degrees.

The solution to this lack of transparency is relatively simple, but will require government intervention to ensure all institutions follow the same rules. This was exactly the conclusion that the GAO came to in their report, calling for Congress to consider legislation requiring colleges to provide all students with financial aid offers containing clear, comparable, and standardized information.

And despite deep partisan divides in Congress today, making financial aid offers easier to understand is one issue that shows high bipartisan support. During the subcommittee hearing witnesses from across the ideological spectrum (including my colleague, Amy Laitinen) supported improving financial aid offers, and House members on both sides of the aisle concurred. Andrew Gillen of the libertarian Cato Institute, one of the witnesses, stated, “The benefits of transparency almost certainly outweigh the costs of implementing and we should pass new legislation to do that.”

The good news is that there is longstanding bipartisan, bicameral legislation known as Understanding the True Cost of College that would do just that. It would require the Department of Education to develop, in consultation with stakeholders such as financial aid administrators and students, a standardized and consumer-tested common financial aid offer template. This offer would require colleges to clearly list their full cost, and separate aid options like grants and scholarships, loans, and work study. It would mandate consistent terminology across communications from colleges to ensure terms like “net price” have the same meaning everywhere. Importantly, by making this a common offer used by all institutions, students and families would be able to make apples-to-apples comparisons among their college choices.

Transparency should not depend on where a student applies or how savvy their family is at decoding opaque financial aid offers. Congress has a rare bipartisan opportunity to fix a problem that students and families have faced for far too long. By passing the Understanding the True Cost of College Act, policymakers can end surprise billing in higher education and ensure that every student receives a clear, comparable, and honest financial aid offer.