Unclear financial aid policies at Northwestern often leave students with unanticipated costs.

Illustration by Emily Cerf

Third-year Isaac Gage thought he understood his financial situation when he applied early decision to Northwestern. First in his family to attend college, Gage needed to take out loans to cover what his college fund and parents’ income wouldn’t.

After his acceptance, he received a National Merit Scholarship for $2,000 per year and a scholarship from the Greater Green Bay Community Foundation for $10,000 per year. But Gage didn’t realize that the Northwestern Undergraduate Financial Aid Office’s initial estimates didn’t factor in a policy that would change Northwestern’s affordability: scholarship displacement.

Under the Higher Education Act (HEA) of 1965, all colleges that receive federal funding are required to include external scholarships in calculating financial need. As a result, Gage’s $12,000 in scholarships were deducted from the financial aid package Northwestern offered him.

“I’m sure if the people that made that scholarship knew exactly how the money is being used, they would find that they would give it to someone else who would actually be able to use it, because it did nothing for me,” Gage says.

The consequences of complexity

In almost all of its promotional materials, the Office of Undergraduate Financial Aid repeats one tagline: “Northwestern meets 100 percent of demonstrated financial need.”

The math seems simple enough. Each year, Northwestern establishes its cost of attendance, while the Free Application for Federal Student Aid (FAFSA) and CSS Profile calculate a student’s expected family contribution (EFC). To determine demonstrated financial need, Northwestern subtracts the EFC from the cost of attendance. And that need is, in theory, covered by the University.

Yet the wide array of policies and requirements in determining financial need shows that the financial aid system is immensely more complex than this, according to the University’s Director of Financial Aid Phil Asbury. External scholarships are discounted through scholarship displacement. The University deducts the cost of housing from students who serve as Resident Assistants (RAs) instead of paying them a wage or stipend for the position. Students taking two or fewer classes fall under the category of part- time enrollment and will have their aid (as well as cost of attendance) reduced for the quarter.

Asbury sees the University as responsible for communicating financial aid plans in clear terms.

“Finances and income, cost of tuition. Those are complex in and of themselves. So any time you’re talking about the cost of college, and you’re talking about how you fund that cost, there are opportunities for lots of confusion,” Asbury says. “So if we can communicate those things in simple ways, then yes, I think that makes a big difference.”

When fourth-year Dylaan Cornish asked the Financial Aid Office how much his aid would be reduced if he dropped to part-time status, they told him his aid would remain proportional to the reduced tuition. Northwestern would give him a refund of the difference in cost.

But when he started classes, he found his aid to be thousands of dollars less than he’d expected. One of his grants, the Monetary Award Program (MAP) for Illinois residents, was also proportional to the number of credits he took — a fact that Cornish wasn’t aware of. e O ce’s initial estimates didn’t clearly communicate that the grant was proportional. Cornish quickly added his research job as a class credit to revert himself to full-time status.

“Rather than working as I want for research, I have to do a full class’s worth of [research] every week and also don’t get paid for it,” Cornish says. “And that’s the only way I could get enough of a refund to cover my rent and groceries.”

When he talks to other students about financial aid, Gage notices how students who only have to deal with a single source of funding, whether that be a full scholarship or money from their parents, typically have an easier time navigating money in college.

For students with multiple sources of aid, where not all need is met by federal aid or university grants, the complexity of the financial aid system takes its toll. Miscommunications within the Offce, which Cornish says is usually quite helpful, led to his actual aid being much less than expected.

“It’s just, again, not necessarily that they’re terrible at their job. But if something were to go wrong with that, I don’t know if I’d be able to go to school anymore,” he says.

For low-income students like Cornish, affordability was a key factor in deciding which school to attend. He always had back-up plans in case the Offce was unable to follow through. “Ever since I got my first financial aid package at Northwestern, I was always very careful about how I navigate [my financial situation], just because that’s one of the deciding factors of me being able to go to school,” Cornish says.

A confounding model

Mark Kantrowitz is the vice president of research and publisher of savingforcollege.com. He says that financial aid systems like Northwestern’s fall under a “high cost, high aid” model — one that omits a fundamental difference in price.

Northwestern’s cost of attendance for the 2019-2020 academic year is $78,654. Yet the net price, the cost a student actually pays to attend, is much lower. e average net price in the 2017-2018 school year was $27,540. is means that by factoring in financial aid, families on average paid less than half of the advertised cost to attend Northwestern.

“That is misleading to the families in a way, because they look and see, ‘Oh, this college is giving us so much grant money. They must really like us.’ Well, no: they’re simply giving back the money that you otherwise would be paying, and their actual cost is the net price, which is much more reasonable,” Kantrowitz says.

According to Kantrowitz, elite private institutions like Northwestern often adopt this model to maintain what’s known as the “Chivas Regal effect.” The name is taken from what was Chivas Regal whiskey. When it was first introduced, the company inflated the price to associate it with luxury, understanding that consumers too often associate price with quality. In the case of colleges, a high cost of attendance often implies prestige, according to Kantrowitz.

“Colleges usually blame the federal government when it’s really, in most cases, the college’s own policies that cause the scholarship displacement.” - Mark Kantrowitz

As Gage was deciding between Northwestern and the University of Wisconsin-Madison, that sense of prestige was significant.

“It was more like ‘Do I want to go to a better school if I pay a little bit more?’ And I just thought, ‘Where’s the threshold of how much I should pay that’s worth it?’ I thought it was worth it for what I was going to be paying at first,” Gage says.

Parents often have trouble navigating the cost of college once their child receives an acceptance letter, according to Kantrowitz.

“[They] are often not willing to say ‘no’ to their children. So they often say, ‘You get in, we’ll figure out a way to pay for it.’ But once a child gets into their dream school, which might be the most expensive college in their field of study, the parents suddenly realize that they have no idea how they’re going to pay for it,” Kantrowitz says.

Northwestern isn’t alone in this regard. While the average cost of attendance for the U.S. News and World Report’s top 25 schools was just over $74,000, students’ average net price for these schools was about $24,000. As more and more private institutions adopt the “high cost, high aid” model, Kantrowitz says the Chivas Regal effect fails to hold.

“It only works if the colleges that charge these high sticker prices are few and far between. When they’re no longer rare, it doesn’t distinguish you in any way. And so you don’t really have any differentiation among the most selective colleges according to the sticker price,” Kantrowitz says.

Determining a student’s financial aid involves dozens of federal, state and university policies and complex accounting formulas. Because of this, understanding the financial aid system is somewhat of a black box, where its internal workings are relatively unknown. But this is something that Asbury doesn’t necessarily see as an issue.

“The need analysis is what it is, and it’s nationally normed,” Asbury says. “Most people probably don’t want to know what their asset protection allowance is. Nor do they ever need to know that.”

This lack of understanding extends beyond Northwestern. The National Postsecondary Student Aid Study (NPSAS) is a survey of more than 100,000 students that’s conducted every four years. e most recent survey in 2019 gave students a six- question test to assess how well they understand the financial aid system. Only 13 percent of undergraduates answered all six questions correctly.

Kantrowitz believes that students and families should be more cognizant about colleges’ affordability. Because many students are going into debt to attend prestigious universities, he says, people should start evaluating whether an education at an elite institution is really worth the added cost.

“Families will spend a lot of time looking at cars, looking at homes. They need to spend a good amount of time looking at colleges and saving for college, to make sure that they’re saving the right amount of money,” Kantrowitz says.

Who's in charge?

Asbury explained federal lawmakers’ rationale for scholarship displacement policies.

“They believe ... that federal aid will be enough to pay for your attendance,” Asbury says. “So you first bring everything that you have. en they’ll give you federal help if you need it. If you don’t need it, if you have all these scholarships already paying for your education, then taxpayers aren’t going to fund you.”

Gage says he knew of the policy’s existence, but was unaware of how dramatically it would affect his situation. “Especially when [Northwestern] says their policy about outside scholarships on their website, they said, ‘ is may affect.’ And from my experience, it’s an absolute. Like, ‘We will. We’re just going to take it, and it will decrease your need-based aid,’” Gage says.

According to Kantrowitz, scholarship displacement can create a disincentive for students to apply for other scholarships. “You have no net financial gain ... You didn’t get the full financial bene t of your scholarship, and that’s challenging,” Kantrowitz says.

Asbury says that Northwestern’s policies regarding scholarship displacement are set up to only benefit students, giving them the option to first forgo work-study or loans in place of their scholarship. In situations where external scholarships are small, Asbury says Northwestern attempts to reduce loans and work-study aid before need- based grants. But when a scholarship exceeds those, Asbury notes that there’s not much the office can do.

But Kantrowitz says hiding behind the guise of merely following federal law allows for schools to save their own money.

“The colleges usually blame the federal government when it’s really, in most cases, the college’s own policies that cause the scholarship displacement,” Kantrowitz says.

According to him, adherence to these policies bene ts colleges above all. “In most cases, what the schools are doing is using campus-based aid to fill in holes in the financial aid package because they have discretionary control over it,” Kantrowitz says. “So if a student’s over-awarded, rather than reducing the campus-based aid money — which is not the college’s money, but the government’s money — they’re going to reduce their own grants and scholarships. Because that’s the college’s money.”

Policies like these, however, have also led some low-income students to question if Northwestern administrators truly understand their experiences. at’s why, even when the evidence says otherwise, Cornish always feels like he needs a back-up plan.

“It’s just something that was always in the back of my mind. is school has $11 billion to its name,” Cornish says. “All the administrators are very well o , I’m sure. Do the people who run this institution actually know what it’s like to depend on financial aid scholarships to go to school? I don’t really know.”

Looking toward change

At the time of its passage, the HEA was an unprecedented, sweeping educational reform and a cornerstone of President Lyndon Johnson’s Great Society initiative. Yet Asbury believes the state of higher education has evolved in the 54 years since its passage.

“Not to demean the federal programs — they’re very important because we have about $200 million or so in federal loans for our graduates and professional students ... but the need-based grant portion of that has gotten to be really small. Ninety percent of funding for undergraduates that’s in the form of grants comes from the University,” Asbury says. “So the bulk of the money now comes from the University, not from the federal government, not from the state government. e world has changed dramatically.”

The HEA is supposed to be reauthorized every four to five years, updating to remain consistent with the modern financial aid system. The law hasn’t been reauthorized since 2008. Congress has extended the authorization period since it was due in 2013, continually delaying an update.

“Do the people who run this institution actually know what it's like to depend on financial aid? I don't really know.” - Dylaan Cornish

Asbury is hopeful that the next authorization of the HEA will better reflect the modern financial aid paradigm, including tying financial aid to income instead of financial need.

“That makes all the sense in the world to me, to just say, ‘If you’re a family and you make below the poverty line or below 200 percent of the poverty line, then you qualify for this federal grant. And here’s the amount, now take it wherever you want and go with it.’ That would be a perfect model in my mind,” Asbury says.

Ten years ago, Asbury served on a committee that ran through the College Board to consider this exact model, and was hopeful that future policies would adopt the change. He says that the Trump administration has been less cognizant about the details of these policies than the former administration.

“They don’t dive into the details like the former administration did. The former administration was really aware and knowledgeable about a lot of those things,” Asbury says.

With a stalemate at the national level, some states and individual universities are taking their own course of action. In 2017, Maryland enacted a law that banned scholarship displacement at public universities. For Maryland’s private institutions and the rest of the nation, though, the practice remains commonplace.

On February 20, the University of Southern California announced that it would be shifting its financial aid policies toward a more income-based model. e policy’s main changes are that families with an income below $80,000 will not pay any tuition and home ownership won’t be a factor in determining financial need. Asbury says the value of a policy such as USC’s primarily lies in its simplicity.

“I think when you say, ‘We meet full financial need,’ people don’t necessarily know what financial need means. And so it does make it a little more mysterious. Whereas if you just speak in terms of family income, people know what family income means,” Asbury says.

But simplicity doesn’t always mean maximizing financial support. Asbury says the complex calculations in determining financial need have enabled Northwestern to develop a policy that grants more aid than a policy like USC’s. Over the past three years, Northwestern has seen its cost of attendance rise 2 to 5 percent every year, frequently outpacing the national rate of inflation. Meanwhile, the University’s average net price has decreased by around $2,000, reifying the “high cost, high aid” model.

Even when the Office makes mistakes, Cornish remains thankful for Northwestern’s financial aid system. When he was deciding which college to attend, Northwestern was the only place he could afford.

“A lot of students have to pay full price, but I literally get $70,000 in financial aid each year, roughly. It’s pretty incredible. is miscommunication makes life a little harder, but I’m pretty grateful that it’s even an option,” Cornish says. Over his first two years at Northwestern, Gage’s EFC kept increasing. That’s because his father became a partial owner of the memorabilia company he’s worked at since he was 18 — a fact that wasn’t initially reflected in his FAFSA. “If I would have known that it was going to go up every year, then I probably would not have come here,” Gage says. “But I had no way of knowing that at the time.”

Having already spent two years on campus, Gage had to act quickly. Instead of accruing more student debt, he decided to graduate a year early. As he spends his last year in Evanston, Gage wonders if attending the University of Wisconsin-Madison would’ve been a better choice. With Northwestern’s prestige and name recognition, he says, it may only seem worthwhile to him years after he leaves.

“I look at how much money I’ve accrued in debt and how much it’ll probably end up costing me by the time I’ve paid it all odd, and it’s hard to justify where I am right now,” Gage says. “Even if I went somewhere else for four years instead of three, it would have been way less.”