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

Universities rarely release the specific criteria behind their aid decisions. Could a little-known regulation help open the black box?

By Marian Wang Special to the NNPA from ProPublica | 6/6/2014, 2:17 p.m.

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.”