Unaudited Cost Reporting in Higher Education: Spatial Competition and Consequences for Low-Income Borrowers

• In Event: Uncertainty in Higher Education: Admission, Aid, and Costs

Abstract

Federal law requires U.S. postsecondary institutions to publish a Cost of Attendance (COA) that covers tuition, fees, books, and estimated living expenses. While most COA components follow well-defined formulas or market prices, one component stands out: off-campus living costs, which institutions estimate at their own discretion with no standardized methodology or external audit. This figure is consequential because the COA directly determines how much federal financial aid a student can receive. If reported living costs fall below what students actually face, aid eligibility may not cover real expenses, pushing students toward costlier financing or unmet need. Prior work has documented variation in how institutions set these estimates using cross-sectional snapshots, but no study has tracked underreporting over time at a national scale, examined whether it reflects competitive dynamics among nearby institutions, or tested whether it generates downstream financial consequences for students. 

Using publicly available data from IPEDS, the College Scorecard, and federal cost-of-living sources (HUD, USDA, BEA, BLS, KFF), this study constructs an independent living cost benchmark and compares it to institutional self-reports across a 14-year panel of 2,311 four-year institutions (2010--2023). The analysis proceeds in four stages: (1) documenting the magnitude and trajectory of underreporting across 14 years, extending prior cross-sectional estimates to a longitudinal panel; (2) testing whether underreporting is spatially clustered in ways consistent with competitive behavior; (3) assessing whether state appropriation funding causally affects reporting accuracy, motivated by evidence that state spending fluctuates with economic cycles and shapes institutional behavior, using a Bartik shift-share IV and a border discontinuity design; and (4) estimating the association between reporting gaps and student outcomes including degree completion, loan default, and repayment. 

Roughly half of institution-years report living costs below the benchmark. Underreporting is spatially clustered: when nearby institutions underreport, a given institution is more likely to do the same, implying a coordination failure that voluntary reform cannot resolve. The Bartik IV shows that exogenous declines in state funding compress reported living costs at public institutions ($362 per $1,000 reduction), consistent with fiscal pressure intensifying competitive incentives to underreport. A border discontinuity finds no corresponding jump at state boundaries. 

Reporting gaps are not associated with degree completion for any student group. Financial burden main effects are also largely null, consistent with federal loan caps binding regardless of reported costs. However, the sensitivity of financial outcomes to gap variation is sharply concentrated at institutions with high Pell enrollment shares. A directional decomposition shows that underreporting at high-Pell institutions is associated with elevated debt-to-earnings ratios, consistent with compressed aid eligibility. The default rate association is concentrated in high-cost metropolitan areas and likely reflects local economic confounding rather than a direct reporting effect. 

These findings identify a policy-actionable information failure. Competitive dynamics discourage accurate reporting, and the resulting mismatch concentrates financial burden among the students the aid system is designed to serve. Linking COA to externally auditable benchmarks would improve need-based aid calculations and reduce this burden at the institutions where accurate cost information matters most.

Author

• Guan-Fu Chou, University of Michigan Ann Arbor
  Presenting Author