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The Higher Education Opportunity Act of 2008 and the Net Price Calculator:
Turning the Act into Action

The Higher Education Opportunity Act of 2008 – all 432 pages of it – is significant for several reasons. The law annually increases the maximum and minimum Pell grants incrementally over the next five years. It requires identification of the top five percent both of institutions with the highest total costs and those with the greatest rates of cost increase over the prior year. And, for those spotlighted institutions, it mandates a report on how they plan to reduce costs in the future.

Potentially the most “game-changing” requirement, however, is the directive that colleges and universities provide a Net Price Calculator (NPC) on their websites by October 29, 2011. The NPC is intended to help students and families acquire an indication of the amount of financial aid they could expect to receive at an institution and, therefore, to understand the potential net price of an education at that college or university. The law also mandates that the Department of Education create a calculator template for any institution to use, which the Federal government released in October 2009.

This policy shift is dramatic because it suggests, and could well catalyze, a new wave of consumer transparency in higher education the likes of which has not been seen since U.S. News & World Report began ranking colleges and universities in the 1980s. This emergent era of transparency is shaped by the simmering concerns of consumers, institutions, governments, and the media about the cost of higher education today, and is accelerating at this particular moment due to the NPC requirement.

Colleges and universities now face a defining strategic choice. On the one hand, institutions can merely comply with an obligation imposed by government, perhaps in some cases hoping that a head-in-the-sand approach will make the “problem” go away. On the other hand, some will embrace the NPC and use it to their advantage, and in doing so play a productive role in shaping and leading the transparency movement. After all, the NPC presents a major opportunity for institutions to communicate that they are more affordable than many students and families believe.

We all know how generous and creative institutions are, and will continue to be, in the sincere effort to make higher education affordable and accessible. In that spirit, we suggest that the Net Price Calculator should be seen as far more than a government mandate. Instead, it’s an opportunity to engage your prospective and current students and families in increasingly substantive and transparent communication, education, and relationship building.

We’re advising clients to seize this leadership moment and see the NPC and the selection of the right calculator – since some are far better than others – as a tool with enormous potential for institutions and consumers alike. Indeed, we are working with some far-sighted, well-led institutions right now that are out in front of this issue and “own” the change as if it was their own idea.

Embrace the transparency!

The NPC and the Big Picture

What will all of this mean for higher education generally, what could it mean for your institution, and what might you do in response? To date, there has simply not been enough helpful analysis on this subject for practitioners.

As we analyze the issue from all sides here, two major themes are emerging:

Is This the Next U.S. News?

The U.S. News & World Report college rankings delivered aggregated comparative data to the public in a concise way for the first time. It was transformative for public perception as well as institutional reaction. The rankings shone a bright, hot spotlight on certain college characteristics and statistical metrics – and not necessarily the ones that some colleges and universities believed were most central to their mission and purpose (Maguire Associates has been critical of US News methodology in the past, while still recognizing the value of certain individual data elements, especially those related to retention). In the same way, ready access to individualized award estimates will have the potential to lift the veil on financial determinations that institutions have been making privately for many years.

Once these floodgates open, decisions on where to apply for admission will carry an added dimension. It may become similar to the way that families today access academic information without ever requiring direct contact with institutional representatives unless their interest rises past a certain level. In the process, if institutions don't plan proactively and create an NPC that captures contact information, institutions may lose the ability to put the information into context. Such an eventuality could bring “stealth applicants,” already a growing phenomenon today, to an entirely new level after 2011.

Is This a New Competitive Crossroads?

Because net price is largely associated with individual families and students, however, the impact may not necessarily be felt nationally in the wholesale manner of the U.S. News rankings. It could well manifest beneath the surface rather than in the spotlight, at least initially, suggesting a more distributed, “retail” form of transparency.

The NPC will be deployed by various institutions in such different ways – what information is requested and which characteristics are pertinent in determining financial aid awards, for example – that centralization of the information will be a daunting task. A vision exists of a single source for immediate comparison of these net price approximations, where a family can navigate and compare multiple institutions. It's a complex task that, if achieved, could have an astonishing impact. Until that time, however, the sea change is likely to be felt in the specific ways that the savviest institutions use the NPC to offer and promote value, opportunity, and affordability and surpass those competitors caught in a downward spiral of NPC resistance.

The NPC and Your Institution

It’s safe to say that the Department of Education’s calculator template leaves much to be desired for most potential users. Without significant customization, the federal template presents particular challenges for universities and colleges that fund and distribute large amounts of institutional grant aid in differential ways to reward academic accomplishments. In developing an institutional response, therefore, it will be essential for you to assess what sort of calculators are best for you and why.

As we continue to absorb the realities, risks, and potential problems created by certain uses and misuses of these calculators, here are three suggestions for today to help turn this Act into action:

  1. Don’t Procrastinate. The NPC discussion is more complicated than one might think, and we already think it’s very complicated. That’s because the accessibility of a personalized award approximation will fundamentally change the way we all try to navigate the tense issues of cost and affordability with students and families.

    This new law has long tentacles into countless facets of recruitment, enrollment, and even retention that the market has yet to realize fully. As with any complex piece of legislation, there can be no doubt that the Law of Unintended Consequences will be at work here, too.

    The NPC will clearly affect how students communicate with admissions and financial aid offices, how they determine where to apply for admission, possibly without ever communicating with the institution, how they evaluate their actual financial aid offers after admission or even their current packages as returning students. And no doubt more dominos could get knocked over in the process.

    The key word is could. If you think, plan, and test early, however, you will allow for the ability to implement what we have referred to in previous issues of Insights for a Challenging Economy as the 4A Approach: Analyze, Attempt, Assess, and Adjust.
  2. Review the DOE Template Carefully. We joined others in being skeptical of the ability of the Department of Education (via NCES and OPE) to produce a one-size-fits-all Net Price Calculator template that can work effectively across the immeasurable diversity and complexity of higher education. Once released, we noticed that the federal template indeed has some modest positive characteristics. It’s concise and allows for some minimal customization. However, it is almost completely generic and formulates an Estimated Family Contribution (EFC) in a way that won’t necessarily align with your institution’s calculations. It has the potential to be grossly inaccurate due to its simplicity.

    These facts present enormous problems for institutions, especially for those with even the most modest measure of sophistication or variance in financial aid awarding practices, which includes nearly all private institutions and a sizable majority of those that are public. Those whose awards incorporate holistic characteristics beyond basic need, like student achievement or perceived contribution to the campus community, will likewise find the template sorely lacking. So, while the federal template may be "free," it comes with a potentially staggering cost in the recruitment and enrollment process.

    Using the template as a “straw man” and a mental starting point, institutions can start asking some major questions, such as:

    1. What message would this calculator send to prospective students?
    2. What message would it send to admitted students?
    3. Would we be comfortable with the reality that the calculator will occasionally take the place of our detailed messages about value and affordability?
    4. Does the calculator demonstrate our value and uniqueness to prospective families?
    5. Dare we risk settling for less-than-satisfactory answers to any of these questions?

    No matter how much institutions make it clear that any net price calculation is a guide or an approximation, and that the details of the application and FAFSA may create a substantially different financial aid package, the stark reality is that numbers often trump words. So, consider this default position carefully as you wade through the decision-making process for building or buying the best possible NPC.

  3. Create an Asset. Some institutions are said to be considering what might be thought of as a “comply and bury” approach. It’s a plan, in essence, to nod to the new directive, place an NPC deep within their websites, and then hope for the best. Sure, avoidance is a natural inclination when facing issues that force open new ways of thinking about recruiting and enrolling students. But, we believe avoidance is a losing hand. It is precisely the wrong way to think about taking the best advantage of these shifting sands.

    Just because the NPC is mandatory does not mean you must let it be a burden or liability. Make it work for you. Deliver an NPC that not only meets the objectives of the law, but also serves the objectives of your institution as well as your prospective students and families. Through a collaborative process among admissions, financial aid, student affairs, and other key constituents, you can build a real asset that benefits everyone within and everyone considering the institution.

    Build one that captures valuable data for ongoing analyses and improved decision-making. Build one that generates interest among the kinds of students you hope to recruit and helps develop relationships with them. Build one that blends seamlessly with your key messages, selling points, and value propositions. Build one that your admissions and financial aid staff will be proud to share with students. Build one that you promote, not one that you hide. And build one that is, above all, accurate for most families.

Seize the opportunity

The Higher Education Opportunity Act of 2008 and its call for a Net Price Calculator are now the law of the land. We can either lament this new development or move forward to embrace the transparency in the most effective ways possible. We see some of our most thoughtful, productive clients already doing so and positioning themselves to lead in this new era.

Let’s use this transition period to reconfigure how we all communicate with students and families about the value of higher education, and not just the price. We can do it if we don’t procrastinate, if we think carefully, and if we turn the accountability into an asset.

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