How Exactly Do Colleges Allocate Their Financial Aid? They Won’t Say

By Marian Wang, ProPublicaThis piece originally ran on ProPublica.

At the center of the admissions and financial-aid process is a massive information imbalance: Schools make their decisions with detailed data about each applicant that goes well beyond test scores and transcripts. Many universities have access to comprehensive financial profiles, sometimes down to the type of cars a family drives. Some analyze patterns and interpret even the most subtle indicators from students, such as the order in which schools are listed on the federal financial-aid application, or even how long a student stays on the phone with an admissions officer.

Students are not so lucky. Schools offer comparatively little information about exactly who they’re awarding aid to and for what. College-bound teens and their parents often resort to college forums, sharing their personal “stats” — their financial and academic profiles — with strangers online to get advice on which colleges are likely to be generous with aid. Once they get their financial-aid awards, some even go back to these forums to compare their aid packages in an attempt to reverse engineer colleges’ criteria.

Most colleges offer “vague and superficial” disclosures about how they allocate their financial-aid dollars, said Mark Kantrowitz, a financial-aid expert with Edvisors, which publishes websites about paying for college. “They don’t give details about the actual formulas they use.”

Take Newman University, a Catholic liberal-arts college based in Kansas.

What are the actual criteria the college uses to determine who gets aid and how much?  “That’s proprietary information,” said Pam Johnson, Newman’s interim dean of admissions and financial aid. “It’s part of our competitive strategy.”

Six other universities we contacted declined, or did not respond, to our request for details on how they allocate aid, including Columbia University, George Washington University, and Indiana Wesleyan University.

While universities don’t want to disclose the details, they have become increasingly strategic in recent years about how they use their aid and which students get it. Aid isn’t just given to students in need, it’s also used now for what schools call “financial aid leveraging” — often to entice high-scoring students who will help a school’s ranking or to give a small, feel-good discount to attract out-of-state students who will still end up paying a higher price.

Such strategies can result in curious outcomes.

At Newman, for example, the most recent data available shows the school charging students in the lowest income bracket, on average, several thousand dollars more than students in the two income bands directly above them.

It’s “certainly not intentional,” Johnson said. “There’s not a financial-aid grid that says, ‘Give more money to rich kids.’ It’s kids who meet other criteria that are getting financial assistance.”

Johnson says the school provides need-based aid in addition to its merit-based grants and athletic scholarships. But, according to Johnson, even “need-based” grants aren’t based solely on need: The size of the grants also depends on a student’s academic merit — a fact the school’s website doesn’t mention.

The Obama administration and Congress have tried to nudge colleges toward greater transparency, rolling out a number of consumer tools to help make information about college more accessible and comparable across institutions. Among the tools available are the model financial-aid award letter and colleges’ net-price calculators, which provide students with individualized cost estimates.

Both were meant to help students understand what college will cost. But neither brings any transparency to how colleges themselves are helping to determine those costs when they give aid dollars to some students and not to others.

“I think opening up the information would be a good thing,” Kantrowitz said. “It would enable perhaps something even better than a net-price calculator, which are just approximations.”

In fact, a mechanism for greater transparency may already exist.

There’s currently regulation on the books requiring colleges participating in federal student-aid programs to disclose to current and prospective students “the criteria for selecting recipients [of financial aid] from the group of eligible applicants,” as well as “the criteria for determining the amount of a student’s award.” That goes not only for federal and state dollars, but also for the financial aid that universities give out themselves.

The law and regulation don’t spell out what details colleges have to disclose.

U.S. Department of Education Press Secretary Dorie Nolt sidestepped our questions about what the regulation actually requires. Nolt also did not say whether the department has ever enforced the transparency regulation.

The ambiguity leaves colleges and universities a lot of wiggle room, and exactly what financial-aid information is available varies depending on the school.   

Jon Oberg, a former congressional liaison in the Department of Education’s Office of Legislation, told ProPublica that Secretary of Education Arne Duncan could give the regulation teeth with a simple letter that spelled out what “criteria” universities would have to reveal about their decisions about financial aid.

“The need for disclosure is paramount right now because of the shenanigans going on,” said Oberg, who worked with Congress on matters of interpretation, enforcement and regulation related to federal higher-education law. “Without that, it’s very open to people saying, ‘It’s vague, so we don’t know,’ or schools saying, ‘If it’s vague and there’s no enforcement, we don’t have any obligation.'”

As it stands, colleges’ disclosures about their aid criteria “could be very ambiguous and still meet the statutory framework,” said David Bergeron, formerly the top advisor on higher education at the Department of Education. “Unless you have a regulation that’s specific about more detailed disclosure, I don’t think the Department can enforce anything.”

Bergeron and Oberg say that colleges are doing things now with institutional aid that those writing the regulations could not have anticipated at the time.

“It’s a very old provision,” Bergeron said. “It predates a lot of the significant activities and changes over time. It likely predated a lot of the public higher education financial aid.”

Bergeron worries about the unintended consequences of disclosure — particularly, that the colleges that do give generous aid to needy students would feel pressure to equalize aid across all income classes to make their practices seem more palatable to the public. He’s also not sure, he said, whether the greater disclosure would ultimately be helpful to students, or whether it would get lost among the other paperwork sent their way.

Oberg, on the other hand, believes that the benefits of greater transparency would outweigh potential drawbacks — and that it’s better for people to know more rather than less.

“The consequences of being able to keep these decisions behind closed doors have been very bad for a lot of people,” Oberg said. “I would argue that transparency leads to positive things for higher education.”

Nolt said the Education Department has encouraged more transparency, pointing to the standardized financial-aid letter the agency has developed and that colleges can voluntarily adopt.

“The U.S. Department of Education and Secretary Duncan think that institutions should be transparent about the cost of college and should empower students with the information necessary to make a smart decisions about where they will attend college,” Nolt said in a statement. “Students are best served by receiving clear, easy-to-understand information about their aid package from their college — and that’s what we’ve been developing in partnership with institutions and the Consumer Financial Protection Bureau.”