Transparency in College Costs

Executive Summary

This paper addresses the lack of transparency in the college pricing system, past attempts to address the problem, and proposals to do more in the future, with a particular focus on selective, private higher educational institutions. Despite recent federal legislation, students still have limited ability to anticipate the costs of college. Survey evidence indicates that the majority of students know no price other than the stated college tuition, despite the fact that many students would be expected to pay considerably less. For many young Americans, this information deficit reduces the likelihood that they will attend college—and it reduces the quality of the institutions for those that do attend.

The federal government has attempted to clarify college costs by requiring higher educational institutions to post “net price calculators,” designed to provide students and families with estimates of their expected cost, incorporating financial aid, based on their own finances. It also mandated institutions that receive federal aid to report their average net price of attendance among all students who receive financial aid, as well as the average net price disaggregated by income level. Both sets of statistics are reported on the College Navigator federal website. The White House also reports average net prices on its College Scorecard website.

Although these policies are well-intended, they have had limited success and may even make matters worse. Net price calculators are too difficult to use to have much impact. Differences in average net prices across schools capture variation in the socioeconomic circumstances of the student body rather than price differences that an individual student would face. Average net prices by income category are substantially influenced by outliers, a statistical problem typically associated with the use of averages rather than medians. In the end, tools designed to improve the transparency of college costs need to be simple, accurate, and individualized. None of the currently mandated tools satisfy all of those goals.

In September of 2013, Wellesley College introduced a new tool, called My inTuition, to improve the transparency of its pricing system. My inTuition is like a vastly simplified net price calculator; it provides students with estimates of what it would cost them to attend Wellesley College after factoring in financial aid based on their answers to six basic financial questions. These questions ask about total family income, home value and mortgage balance, cash holdings, and retirement and non-retirement investments. In the first year, demand for estimates is high, most users who start the calculator complete it, and average time to completion is just three minutes. Survey evidence indicates that the vast majority of users find My inTuition helpful and easy to use. Although it is too soon to tell what impact it will have on applications, the College has seen a 20 percent increase in the number of prospective applicants following implementation.

This analysis provides lessons for existing proposals and offers new ones to improve transparency in college costs. Existing proposals generally do not satisfy the fundamental objective of enabling an individual student and his or her family to anticipate what college is likely to cost them. One simple new proposal is to replace reported values of the average net price by income level with the median net price. More broadly, I argue for greater availability and use of simplified financial aid calculators.

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As seen: https://www.brookings.edu/research/transparency-in-college-costs/