Despite frequent media reports about the high cost of college, many students pay much less than the eye-catching sticker price. Students enrolled at four-year institutions living away from their parents face the highest sticker prices. But only around a quarter or fewer of those enrolled at public institutions (for state residents) or private nonprofit four-year institutions pay that sticker price. The remainder receive financial aid. Even most high-income students receive merit-based aid. How are they supposed to know how much they will have to pay?
Here is how colleges and universities could help. They can provide students with tools that lead them through a financial aid “information funnel.” Provide limited financial details (just family income?) and get an instant ballpark estimate at the top of the funnel. Provide a few more details, get a better, but still ballpark estimate. Keep going until you get an actual price. Extreme simplicity at the beginning of the process facilitates entry; the funnel should have a wide mouth. If the result is below sticker price, it can promote further investigation. Along the way, positive reinforcement through favorable results (if they occur) supports students continuing through the funnel.
Courtesy of Phillip Levine
This approach represents a significant advance over past practices, as I detail in a report newly released by the Aspen Economic Strategy Group (AESG). Historically, colleges provided no preliminary estimates. Students filed their financial aid forms (FAFSA and perhaps CSS Profile), applied to a college, and received their admissions decision and financial aid offer (if admitted) at the same time. Who knows how many students didn’t bother to apply because they believed they couldn’t afford it?
This began to change in 2008. The Higher Education Act was amended at that time to require institutions to provide “net price calculators” by 2011 that were intended to provide early cost estimates. Unfortunately, the well-intended policy hasn’t been very effective because these tools often are not user-friendly. They may represent a useful step higher up the funnel relative to the ultimate financial aid offer, but they remain toward its bottom.
Other steps have been taken along the way attempting to provide greater pricing information to prospective students. The government launched new webpages (the College Navigator and the College Scorecard), which provide college-specific details regarding the average “net price” (the amount students pay after factoring in financial aid). But the average net price mainly helps students with average finances determine their net price. Besides, using the median rather than the average would lessen the impact of outliers. It’s a much better statistic to capture the amount a typical student would pay in this context. Additional data on net prices within certain income bands are also available, but they still suffer from the biases introduced by using the average net price as well. What students really want and need is an accurate estimate of what college will cost them.
The most recent advance in college price transparency is the creation of the College Cost Transparency Initiative. This effort represents the response of hundreds of participating institutions to a Government Accountability Office report detailing the inconsistency and lack of clarity in financial aid offer letters. To participate, institutions agreed to certain principles and standards in the offer letters they transmit. It is an improvement relative to past practice, but it also is a bottom-of-the-funnel improvement. It does not provide greater price transparency to prospective students prior to submitting an application.
Institutions have also engaged in other marketing activities designed to facilitate communication of affordability messaging. Some institutions have begun to provide offers of free tuition to students with incomes below some threshold. The success of the Hail Scholarship (now repackaged as the Go Blue Guarantee) at the University of Michigan supports such an approach. Many of these offers, though, do not cover living expenses, which is a particular problem for students living away from their parents. In those instances, such offers may be more misleading than illuminating.
In 2017, I founded MyinTuition Corp. as a nonprofit entity designed to provide pricing information higher up in the financial aid information funnel. Its original tool, now used by dozens of mainly highly endowed private institutions, requires users to provide basic financial inputs and receive a ballpark price estimate. More recently, MyinTuition introduced an instant net price estimator, which is currently operational at Washington University in St. Louis, based solely on family income. Given the limited financial details provided, those estimates include some imprecision; the tool also provides a range of estimates within which the actual price is likely to fall. These tools are an easy entry point into the process, which is what the top of the funnel is designed to accomplish. More such efforts are necessary.
If we could do a better job communicating the availability of financial aid, it would also contribute to better-informed public discussions about college pricing and access. One recent survey found that only 19 percent of adults correctly recognized that lower-income students pay less to attend college than higher-income students. It is a legitimate question to ask whether the price those students pay is low enough. But we cannot even start the discussion with such limited public understanding of how much students across the income distribution pay now. Any step that colleges and universities can take to facilitate that understanding would be helpful. Improving the transparency in their own pricing certainly would be an important step they can take.
