Some students are graduating college with 'unmanageable' debt — but it's not their fault, a government watchdog finds

Ayelet Sheffey
Updated ·3 min read
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College graduation photo
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  • The Government Accountability Office released a report that found a lack of transparency in college pricing.

  • Specifically, 91% of colleges are understating the net price, which can mislead students into taking on more debt.

  • Current federal law does not require colleges to follow standards when presenting financial aid packages.

The vast majority of colleges are not being upfront with pricing — and it's causing student debt to surge for borrowers, according to a government watchdog.

On Monday, the Government Accountability Office (GAO) released a report that delved into the way colleges in the US present financial and cost information to students, and it found that schools are overwhelmingly understating the full picture to students.

Specifically, the GAO estimated that 91% of colleges are not including — or are understating — the net price of attendance in the financial aid packages they offer students, which is how much a student would end up paying in total, including costs like tuition, room, and board. About 41% of colleges don't even include a net price, the report found, and 50% of schools understate the net price by failing to include the cost of student loans that would need to be repaid.

Not counting student loans in the total cost could present a misleading picture of how expensive a degree would be, pushing students further into debt.

"Colleges that estimate the net price by subtracting student loans from the cost of attendance do not present the full net price because students generally must repay their student loans eventually," the report said. "Additionally, subtracting student loans in the net price estimate presents loans as the default method for paying for college, potentially encouraging students to borrow more than they otherwise would."

The report also noted that failing to include loans in the net price is particularly problematic for borrowers with parent PLUS loans — a type of loan a parent can take out for their child that covers up to the full cost of attendance. Since PLUS loans have higher interest rates than other federal loans and have no borrowing limits, it can lead to "unmanageable debt," and failing to account for those loans in financial aid packages can "drastically underestimate the amount a student's family will need to pay for college," the report added.

Insider has previously reported on issues with college pricing and how making costs clearer to prospective students could be a permanent step toward solving the student debt crisis. Phillip Levine, an economics professor at Wellesley University and founder and CEO of MyinTuition Corp, which operates a simplified financial aid calculator, told Insider that lack of transparency in financial aid packages is a "fundamental problem" with college affordability.

"Once you find yourself in a position where you want to attend an institution that is going to charge you more than you can afford, the easiest 'solution' is to borrow to fill in the gap," Levine said. "And that can lead to excessive debt."

Responding to the GAO's report, Federal Student Aid Director Richard Cordray said that the findings "could be particularly concerning where the college also offers other loans or financial products to its students once they are enrolled," and he said the Education Department continues to encourage schools to improve their financial aid recommendations.

Still, federal law currently does not require colleges to standardize the information they include in financial aid packages, so while the Education Department may encourage schools to be upfront with pricing, they are not required to disclose all cost-related information to students.

As a result, GOP lawmakers Virginia Foxx and Lisa McClain on Monday called the report's findings "egregious and unacceptable" and introduced the College Cost Transparency and Student Protection Act, which would increase transparency in financial aid packages.

"Colleges and universities must do better," they said in a statement. "Prospective students deserve to have all the information necessary to make informed decisions about their education. Schools should strive to provide students with accurate and transparent information about college costs instead of hiding behind opaque language and misleading practices."

Read the original article on Business Insider