Cost of Living Estimates for Financial Aid Purposes: Should States Get Involved?

Mar 20, 2018 · 5 min read

Written by:
David Tandberg
Vice President for Policy Research and Strategic Initiatives, SHEEO
Robert Kelchen
Assistant Professor of Higher Education, Seton Hall University

Sarah Pingel
Senior Policy Analyst, ECS

The fact that students struggle to pay for college is not news to anyone paying attention.

The price of college has increased at rates that far exceed inflation and price growth in most other areas of the marketplace. For those working in higher education, issues surrounding college affordability have received increased attention given recent federal action, including conversations around the potential reauthorization of the Higher Education Act. While much of the attention has focused on tuition and fees, the total cost to students to attend college is perhaps even more important.

An often misunderstood, and at times ignored, key component of the total cost of attendance is the cost of living (COL) estimate.

The COL estimate is generated by the individual institutions and includes room and board and other incidentals and miscellaneous necessities and items. In this post, we examine COL estimates and their importance, the variance in COL estimates, and potential roles for state higher education agencies to play in the COL estimation process.

While providing a sticker price for tuition and fees at a given institution is relatively straight- forward, estimating the COL has proven less clear cut. The Department of Education provides vague guidelines for producing estimates, but is not allowed to regulate COL estimates (sometimes called COL allowances or living allowances) under the Higher Education Act. The National Association of Student Financial Aid Administrators has provided recommendations but they are, of course, non-binding. Because of the lack of clarity, individual institutions are relatively free to establish their COL estimates with little oversight or consistency. The result is that there is tremendous variance between institutions, even those within the same geographic area.

The variance in COL estimates is important because the estimates affect student eligibility for federal and state financial aid and also effects the potential impact, effectiveness, and costs of those financial aid programs. As Kelchen et al (2017) argue, “it is possible for this variation to contribute to inequities in where students attend and complete college by affecting perceived affordability, actual financial need, and student debt.” In that regard, if a school understates the actual living costs in an area, students may receive less financial aid than needed to cover expenses and face difficulties in paying for college. Further, colleges may also face incentives to increase their COL estimates. For-profit colleges are required to receive at least 10% of total revenue from non-federal sources and therefore may wish to increase the price beyond what students can borrow in federal loans.

Kelchen et al (2017) examined institutional variation in COL estimates and assessed the consistency of the estimates by comparing them to COL estimates specific to the college’s region. Their results indicate that nearly half of all colleges provide COL estimates at least 20% above or below estimated county-level living expenses. Furthermore, there is significant variation between institutions in the same geographic area. Figures 1 & 2 provide examples of the variation across institutions within Chicago and Philadelphia, respectively.

Figure 1: Central Chicago COL Estimates by Institution

Source: Kelchen, et al (2017)

Figure 2: Central Philadelphia COL Estimates by Institution

Source: Kelchen et al (2017)

For those interested in interacting with the Kelchen et al (2017) data, The Chronicle of Higher Education developed some excellent data visualization and interactive tools, which can be accessed here:

There is also significant variance in COL estimates within and among the states. In this data table (and linked to below), we show the state-level COL estimates at the 10th, 25th, 50th, 75th, and 90th percentiles as they were estimated by Kelchen et al (2017) and compare those to the aggregated COL estimates developed by the institutions. While it is hard to say which estimate better resembles reality, the variance in the degree to which the estimates align is another indicator of how widely institutional estimates vary from each other.

This leaves us with a question: If the federal government has little interest in regulating or providing more specific guidance to the institutions, is there a role for the states to play? SHEEO recently polled its members and asked: “Does your agency regulate, provide guidance for, or monitor the cost of living estimates developed by institutions for financial aid purposes?” Over 80% of respondents indicated they had no involvement in institutional COL estimates. Two either regularly or periodically collect institutions’ estimates and/or collect a description of the processes institutions use in developing their estimates. Only one state (Colorado) indicated that they provide any form of formal direction to the institutions. Colorado annually provides guidelines for financial aid administrators to use in determining students’ cost of attendance, including the COL estimate. A search of state statutes did not turn up any additional examples of states requiring the regulation of institutional COL estimates or requiring the state to provide guidance or oversight of the institutional COL estimates.

If states are currently doing little to nothing regarding institutional COL estimations, what role could they play? We envision a number of ways states might engage institutions with their COL estimates. For example, states might:

  • Set each institution’s COL estimate themselves via their own survey or by using available data (California is currently working to develop something like this.)
  • Set regulations providing for how institutions establish their COL estimates
  • Approve each institution’s COL estimate
  • Publish guidelines for how institutions may establish their COL estimates
  • Monitor or approve how each institution establishes their COL estimates
  • Collect institutions’ COL estimates and compare those estimates to nearby institutions’ COL estimates and the state’s own COL estimates
  • Simply collect institutions’ COL estimates

We are not advocating for any one approach. Instead, we are simply raising this as an issue. Since the federal government has taken a hands-off approach, some states may consider it an important enough issue to involve themselves in some way to help ensure that institutions’ COL estimates closely resemble actual costs. This could help students in their planning, and help ensure the most efficient and effective use of state financial aid dollars.

Please click here for data table.

Kelchen, R., Goldrick-Rab, S., & Hosch, B. (2017). The costs of college attendance: Examining variation and consistency in institutional living cost allowances. The Journal of Higher Education, 88(6), 947–971.


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