Very few items are priced in the same manner as a college education. While the price of some items, such as cars and houses, can be negotiated downward from a posted (sticker) price, the actual price and the sticker price are usually in the same ballpark. However, the difference between the sticker price and the actual price paid can be enormous in higher education. This has posed a substantial problem to students and their families, especially those with less knowledge of the collegegoing and financial aid processes.
Until recently, students had to apply for financial aid to get an idea of how much college would actually cost them. The latest iteration of the Higher Education Opportunity Act, signed in 2008, required that institutions place a net price calculator on their website by last October. This calculator uses basic financial information such as income, household size, and dependency status to estimate a student’s expected family contribution (EFC), which would then give students an idea of their grant aid.
The need for more transparent information on the actual cost of college is shown by a recently released poll conducted by the College Board and Art & Science Group, LLC. These groups polled a nonrandom sample of SAT test-takers applying to mainly selective four-year colleges and universities in late 2011 and early 2012 and found that nearly 60% of low and middle-income families ruled out colleges solely because of the sticker price. This is in spite of generous need-based financial aid programs at some expensive, well-endowed colleges.
Given that the survey was conducted right as net price calculators became mandatory, it is likely the case that more students are aware of these tools by now. But it is unlikely that net price calculators have been used as much as possible, especially by first-generation students. To make the net price more apparent, the Department of Education has put forth a proposed “Shopping Sheet” that can be easily compared across colleges. This proposal has advocates in Washington, but there are reasonable concerns that a one-size-fits-all model may not benefit all colleges.
As an economist, I hope that better information can help students and their families make good decisions about whether to go to college and where to attend. However, I am also hesitant to believe that requiring uniform information across colleges will result in something useful.