Cost of Attendance and the Student Debt Crisis: A Case for Policy Reform

Cost of Attendance and the Student Debt Crisis: A Case for Policy Reform


By Marc M. Jerome, President, Monroe College

The student loan crisis is finally receiving the attention it deserves. According to the Federal Reserve, Americans owe nearly $1.3 trillion in student loan debt, with last year’s graduates owing a staggering $37,172 on average – an increase of 6 percent from the prior year. It’s no wonder that so many rallied behind the push for “free” college during the recent election.

While ever-increasing tuition and fees certainly play their part, COA – an institution’s published cost of attendance estimate – also plays a role. Thousands of students across the country take on unnecessary student loan debt as a result of COA and other financial aid policies that permit borrowing for room and board (and other costs) even when no such educational costs have been incurred.1

Cost of attendance policies have strayed from their original intent. Although designed to provide a realistic cost estimate for students, that’s often not the case.

There is no uniformity in how they are calculated, and different institutions have their own motivations for over- and underestimating the numbers. Compounding the issue, COA budgets are self-reported and are not independently verified. Neighboring institutions with students living in the exact same housing market can give dramatically different estimates for room and board. There are generally no budget estimates for commuting students who incur no housing costs as a result of their attendance.

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Inflated COA numbers have strong implications for student debt. Under current policy, students can borrow up to that amount. While loans are intended for educational costs, that doesn’t stop students from borrowing for room and board, transportation, and other costs that they did not actually incur as a result of their enrollment. As a result, students continue to borrow and their debt grows.

Many would be surprised to learn that such ill-advised over-borrowing is partially the fault of Congress, and partially the direct result of policy directives issued by the Department of Education to colleges and universities across the country. The law on COA is unusual. Congress has expressly prohibited the Department from regulating in this area.2 Congress prescribes the categories of expenses and the formula, and leaves it to the institutions to determine the appropriate amounts.

The Department can, and does, issue guidance, however, in the Federal Student Aid Handbook on how it interprets the statutory formula. That guidance serves to push colleges to make loans available for costs that have not been incurred and limits what financial aid offices can do to help their students make smarter borrowing decisions in such cases.

There are, of course, other contributing factors exacerbating the COA-fueled student debt problem, namely:

    • Opposite pressures at each end of the higher-ed spectrum: Higher-tuition institutions feel pressure to keep COA low because of issues surrounding affordability, while low-tuition institutions have a legitimate reason to keep their COA artificially high. If COA is lowered too much, middle-income families are penalized by being disenfranchised from subsidized loans.
    • The absence of a COA budget for true commuter students: True commuters should be distinguished from off-campus housing students. A local student continuing to live at home who has had no change in their housing cost as a result of enrollment does not incur the same costs as someone relocated to the area specifically to attend college who has incurred housing costs.
    • Other competitive pressures: For example, the NCAA changed its standards to allow student-athletes to receive assistance up to the full cost of attendance. In practice, it means that student-athletes can receive a larger stipend. That has recruitment, retention, cost and values implications. Indeed, media reports suggest that there is a battle being waged to see who can offer the biggest stipend to strengthen their rosters.3

Discrepancies in how institutions calculate cost of attendance

For these and other reasons, we see a great discrepancy in how colleges calculate their COA and that, in turn, can result in two neighboring institutions having very different COAs due to their room and board calculations – even though they are in the same neighborhoods.

Let’s look at two Florida colleges, Miami Dade Community College and Florida Memorial University. These institutions are within a ten-minute drive from each other. Miami Dade estimates room and board for students “living on your own” for the year at over $15,000. Florida Memorial includes a zero estimate for commuters’ room and board.

How could two neighboring schools have such radically different approaches? One school budgets zero for commuters while another school budgets over $15,000 for room and board. Is it possible that living expenses are so different? Probably not. What likely motivates the difference in approach is the confusing nature of the statutory language and the Department’s guidance on the matter.

At low-cost institutions, including almost every community college, most public four-year colleges and some proprietary colleges, many students qualify for a Pell Grant or other aid that pays for all of their tuition, fees and books.4 Many of these same students are commuters, whether dependent or independent, who already live near the college in an arrangement where living expenses have not changed as a result of enrollment.

As long as their financial circumstances do not change, most of these students should have no need to take any student loan (or only a minimal loan) to cover the tuition, fees, and living expenses resulting from their college enrollment.

The fact, however, that they can borrow to the full amount of the published COA is enough motivation for many students to do so.

COA: It’s an unfortunate matter of interpretation

The Higher Education Act’s (HEA) cost of attendance provisions are intended to provide a realistic cost estimate for students. They provide an institution with broad discretion to determine the actual costs a student will incur to attend that institution.5 Room and board is generally the largest allowance in the cost of attendance,6 and the HEA leaves it up to the college to set this amount. Unfortunately, current policy often results in inflated and misleading cost estimates in practice that actually encourage unnecessary student debt.

The legislative history and plain words of the COA statute indicate that Congress intended loans to be used for educationally related expenses. Institutions should be permitted to ensure that loans are used for expenses that are related to attending college, “reasonable,” and “incurred.”

The Department can and should issue guidance consistent with the HEA that supports this approach and clarifies the HEA’s intent. Instead, the DOE has issued Dear Colleague letters that arguably go beyond the statute and congressional intent. A Dear Colleague letter dated April 2015, for example, makes clear DOE policy:

“Institutions… cannot deny or limit an otherwise eligible student access to Direct Loans.”

“The borrower makes the decision of whether to borrow and how much to borrow…and not the institution.”

The FSA Handbook has further comments restricting institutional ability to limit loans, especially for independent students. Per guidance in FSA Handbook Volume 3, Chapter 5, Page 3-92:

“On a case-by-case basis, you may refuse to originate the loan for an individual borrower, or you may originate a loan for an amount less than the borrower’s maximum eligibility. However, you may NOT limit borrowing by students or parents on an across-the-board or categorical basis. Similarly, you may originate a loan for an amount less than the borrower’s maximum eligibility. However, you must ensure that these decisions are made on a case-by-case basis, and do not constitute a pattern or practice that denies access to borrowers because of race, sex, color, income, religion, national origin, age, or handicapped status. Also note that your school cannot engage in a practice of originating FSA Loans only in the amount needed to cover the school charges, nor limit Direct Unsubsidized borrowing by independent students. When you make a decision not to originate a loan or to reduce the amount of the loan, you must document the reasons and provide the explanation to the student in writing.”

This guidance, which goes beyond the statute and related regulation,7 puts pressure on institutions to make the maximum loan amounts available to students regardless of the costs incurred.

It also leads many institutions to be apprehensive about taking a strict – or in our view, accurate – look at the room and board costs as part of their COA for fear that the Department would view doing so as an improper step to limit student borrowing.

Changing COA policy to better serve students and reduce student debt burdens

Changes to financial aid COA policy could lead to millions of dollars in decreased student loan borrowing and an overall reduction in student loan defaults.8 The repayment of excessive debt can extend for up to 25 years after leaving school, regardless of whether the student graduates, and defaulting carries severe long-term financial consequences, which many borrowers only come to realize long after they took out the loans. The negative effects of student debt are generally more severe for poorer students and minorities.9

Helping students avoid unnecessary debt is critical. Yet, the Department remains focused on helping students only after they have excessively borrowed. While “back-end” solutions are imperative, so, too, is making improvements on the “front-end” – including at the college financial aid office.

Some specific recommendations for the Department of Education:

1. Permit institutions to adopt realistic “commuter budgets” for true commuters.

Many commuting students do not incur room and board charges related to their enrollment. Allow professional judgment exceptions for students who show evidence that they did reasonably incur such costs.

2. Revise DOE Guidance to permit institutions to ensure that loans be used for educationally related expenses.

The legislative history and plain words of the statute indicate that Congress intended loans to be used for educationally related expenses. Permit institutions to ensure that loans are used for expenses that are related to attending college, “reasonable,” and “incurred” – and continue to prohibit across-the-board loan denials where there is evidence of incurred costs.

3. Prorate student loans for part-time enrollment.

The data is clear that part-time enrollment results in loan default; COA exacerbates this by allowing for borrowing up to the full COA. Student loan eligibility should proportionately reflect enrollment intensity.

4. Refine the annual loan limits to reflect credential status and the associated expected earnings.

Currently, there is one aggregate limit for loans for all undergraduate programs. Earnings data suggests that it would be prudent to consider having a separate and lower aggregate limit for associate programs and certificate programs. Allow exceptions where the earnings data warrant.

5. Revisit the wisdom of permitting parents with no credit or weak credit to borrow up to the cost of attendance.

The factual similarities to the subprime mortgage crises should be recognized. Before 2008, banks were willing to issue mortgages to individuals and families with no credit or bad credit citing homeownership as a national value.

Other ideas to provide students with debt relief

There is more the Department should do to partner with colleges in reducing student debt. Some of these would be quite simple and effective, yet the Department has not pursued them:

1. Permit the return of loans for students who withdraw early

Students who withdraw from school are far more likely to default on their loans than those who graduate. Contrary to the perception that the students who default are those with the most debt, often students who have taken very little debt, but have dropped out early in their career, are likely to default. The Department of Education should consider allowing institutions to return the entire amount of loans for students who withdraw very early in their program (such as the first or second semester in a degree program). Clearly, such students did not get the benefit of the education. Some colleges, including Monroe, would be willing to provide a 100 percent return of all loan amounts and put the student in a position as if they never borrowed, so such students are not burdened with the educational debt. This could benefit thousands of students, but the Department has discouraged it as an alleged manipulation of cohort default rates.

2. Consider prior student loan debt as a factor in admissions

Institutions generally make their admissions decisions on applicant’s academic records. However, for a student who has already incurred large loan debt and who is applying to a program which will require significant additional loan debt (especially for graduate programs for which no grant aid is available), it is sometimes appropriate for the institution to take into consideration whether the salary the student will earn justifies this additional loan debt. The Department could offer an affirmative statement that institutions can appropriately consider an applicant’s expected educational debt and ability to pay off that debt at the point of admission and include this factor as one among many in the admissions decision. This is already happening, and will probably happen more frequently in light of some of the new pending regulations, but it seems to be one of those unstated factors that the Department and others prefer not to recognize.

3. Examine the effects of additional loan eligibility when parents are denied a Plus Loan

Dependent students whose parents are denied a Plus Loan are entitled to an additional $4,000 in unsubsidized Stafford loan funds in their first year.10 While this policy is intended to aid students whose parents have adverse credit, the result of additional loan eligibility for these students should be examined. In our experience, students in these circumstances are often in the worst position to handle the extra debt since they are less likely to have families that can assist with paying their loans.

According to Marketwatch, the current national student debt amount grows at a rate of $2,698.30 per second. That pace cannot continue without long-term macro- and micro-economic damage. Reforming COA policy is a step in the right direction. While the proposed recommendations would result in additional administrative burden on colleges, we believe that all quality schools would embrace the additional responsibility in exchange for the empowerment of being better stewards of taxpayers’ money and our students’ futures.

1. 7.7 million results for a Google search on “Can I use my student loans to buy a car?” (
2. HEA section 478 (20 U.S.C. 1087rr).
3. USA Today (August 9, 2015) / “College Athletes Cashing in with Millions in New Benefits.”
4. The changes in cost of attendance policies advocated for in this letter apply to all students. We focus on students who would have no need to borrow for direct costs since they would be most impacted.
5. HEA Section 472.
6. Transportation allowances can also be surprisingly large.
7. 34 CFR 685.301(a)(8)
8. The topic of cost of attendance and financial aid packaging is complex as a result of four factors: 1) The Higher Education Act of 1965 specifically limits the Department of Education’s authority in this area, 2) the statutory language is opaque, 3) changes in cost of attendance policies have a different impact at low tuition versus higher tuition institutions, and 4) policy changes that may benefit low-income students by discouraging unnecessary borrowing may harm higher-income students by reducing their subsidized loan eligibility.
9. See
10. CFR 682.201(a)(3)

Marc Jerome

MARC JEROME, for the past 22 years, has been a driving force behind Monroe College, a national leader in educating urban and international students. The 84-year-old institution is well-known for delivering some of the country’s best outcomes for minority and low-income college students.

A seasoned educator and advocate for increased access to affordable, quality programs, Mr. Jerome is recognized for his expertise on college completion for low-income students and the related topic of student debt. He has long championed the need to reduce unnecessary higher education borrowing and has cautioned against federal student lending policies and guidelines that inadvertently contribute to our current student debt crisis.

Mr. Jerome is also a recognized thought-leader on the impact of Gainful Employment and other higher education regulations. In the fall of 2013, he served on the U.S. Department of Education’s Gainful Employment Negotiated Rulemaking Committee.

With a main campus location in the Bronx, New York-based Monroe College educates close to 8,000 students each year, many of whom are low-income and/or minorities, granting Mr. Jerome a unique perspective on how federal policies impact these families and the measures institutions can take to best respond. Indeed, the College’s award-winning financial literacy program to help students better understand and manage their student debt obligations has been benchmarked by other institutions.

After practicing labor and employment law in New York City, Mr. Jerome joined Monroe College in 1994 as Director of Administration, representing the third generation of the Jerome family to work at the College. In 1996, he was promoted to Vice-President and Director of the New Rochelle campus, building it into a robust, multi-cultural, urban campus in the city’s downtown area. He became the College’s president on January 1, 2017.

Contact Information: Marc M. Jerome // President // Monroe College // 914-740-6803 // // // Social Media:



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