Imagine you paid sticker price for a $50,000 car, only to learn that the average buyer paid half that much. Sounds outrageous, but this sort of overpayment happens at colleges and universities throughout the country. And the novel coronavirus is likely to make things worse.
Higher education appears to cost more than what most students end up paying. This discrepancy is never good for students. And faced with the pandemic threat, many prospective students are considering forgoing college or attending a seemingly less expensive one. Why borrow to pay a high tuition when many professors will be teaching remotely in the fall? The American Council on Education estimated in April that enrollment would drop 15 percent in the coming academic year.
It’s important to note, though, that students can be misled by the sticker price. For a student with a family income of less than $30,000, the average tuition and living costs might be cheaper at an Ivy (Yale: $2,315) than at a state university (Berkeley: $8,043) or a community college (Lehigh Carbon Community College: $4,807).
To aid decision-making, the Education Department should mandate that colleges and universities disclose more information about what students actually pay net of scholarships and grants.
Like sales of new cars, higher education is a market in which consumers have trouble figuring out what most people actually pay instead of the prices displayed. But tuition discounting is much more pronounced than car discounting.
In the 2018-2019 academic year, the average discount rate off the sticker price of tuition was 52.2 percent for incoming freshmen at 405 private colleges and universities. At these schools, almost 90 percent of new college students received a grant; the average amount was $20,255. And COVID-19’s impact on enrollment is almost certain to lead to more aggressive secret discounting as schools attempt to maintain class numbers.
Schools discriminate on price: They claim to charge students different rates depending on applicants’ need and merit. Families should worry, however, that part of the dispersion in prices stems from other factors. Applicants might end up being charged a higher price (net of grant) simply because they failed to generate a competitive offer from another school or didn’t know that they needed to, or could, bargain with the financial aid office. Applicants with similar needs might end up paying an amount tens of thousands of dollars different in tuition.
The Education Department’s College Scorecard, launched in 2015, is an important step in the right direction. For those who navigate to the right part of the website, it provides information on the average annual costs of college for different family incomes. But for too many families, the sticker price is still the one that resonates. They might feel as though they are getting a big break when they are still paying a lot more than similarly situated peers.
The Education Department should require that schools prominently disclose the average cost information for each quintile of family income when describing their sticker price — and that this cost information be provided for not only undergraduate degrees but also graduate and professional programs. When applicants are deciding whether to send in their deposit, they should know whether the school’s offer is substantially more than the average amount paid by a person with similar need.
The need for better, reliable information is particularly acute for graduate and professional schools because the Education Department doesn’t publicize average cost information about these programs. Tuition discounting is so rampant at law schools that the sticker-tuition price has little to do with what most students actually fork over. Professional students who typically amass more than $140,000 in debt should more easily be able to learn whether they are paying more than they have to for their education.
Schools, of course, should be free to award merit and need-based scholarships as they see fit. But with better disclosure on cost, schools would find it harder to “maximize yield” from less-informed applicants.
With the pandemic expected to increase students’ unmet financial need by 20 percent, a mandate to disclose more transparently what schools are already reporting to the government could quickly change the way college admissions work, leveling the informational field and incentivizing schools to do better for those who have the least.