Comparing college costs: There ought to be a better way—and there is!

Commentary about business and finance.
May 27 2011 5:17 PM

Sticker Price 101

Why can't the government make it easier to compare college costs?

College graduation. Click image to expand.
College graduation

The Department of Transportation unveiled on Wednesday a new set of gas-mileage labels, providing prospective car buyers with data on each model's efficiency, fuel costs, and emissions. Transportation Secretary Ray LaHood called the labels "about as consumer-friendly as folks around here have ever seen."

What makes the labels successful is not so much that they contain more information. It's that they make cars easier to compare. For instance, the label lists a car's fuel economy alongside the average for similar cars. It also includes data on how much it will cost to fuel up a car over a five-year period, compared with an average vehicle; an estimate of how many gallons or volts a car needs to drive 100 miles; and metrics to help consumers compare various vehicles' greenhouse gas and smog emissions.

The thinking behind the initiative is that a car is a huge purchase, and American consumers deserve as much and as comprehensible information about it as possible. But for an even bigger expense—a college education—prospective consumers lack such a clear, clean accounting. Forget about labeling cars. We should be labeling schools.

The matter is urgent because the cost of higher education has climbed so high, making understanding its risks and rewards all the more important. The average annual tuition at four-year institutions has risen from $8,552 in 1980 to $20,154 in 2009, as measured in constant 2007 dollars. Average indebtedness at the time of graduation has swelled, too. Students who graduated with loans in 2009 had an average of $24,000 to pay back, according to the Project on Student Debt. When adjusted for inflation, that is 7 percent more than for students who graduated a single year earlier. It is not unheard of for students to take out $250,000 in loans to cover a private-college education.

But what does it cost and what does it buy you, exactly? Answering those questions can be hard—sometimes due to a lack of information, sometimes due to a surfeit of it. Indeed, prospective students are often flooded with numbers about costs, tuition, rankings, loans, and 1,000 other things. But there are few simple, standardized metrics or forms to help consumers—often the students taking out those hefty loans—choose an education at the right price.

Nonstandardized financial aid award letters might be the biggest problem, one that has been knitting the brows of prospective students and higher-ed wonks for years. Schools send these award letters to accepted students, letting them know how much and what type of aid the institution can offer. The idea is to help students comparison shop. But comparison shopping is difficult when you're weighing apples and oranges.

These letters look and read differently. Most schools provide a cost-of-attendance estimate including the price of classes along with the price of housing, books, food, transportation, and other necessities. But different schools calculate the total cost of attendance differently. Many, for instance, perennially underestimate the cost of living in their respective college towns.

Worse, schools do not calculate aid and loan amounts the same way, and some even fail to clearly distinguish between loans and gifts—leaving students and their families confused about what they will actually owe. A December 2010 survey conducted by Fastweb, a scholarship-matching site, found that more than half of students found the letters difficult to compare. And 84 percent of students and parents wanted a standardized sheet.

The award letter situation is particularly vexing because it seems so easy to fix: Just require colleges to send out the same letter, with the various sums included calculated in the same way. Julie Margetta Morgan at the Center for American Progress  suggests a simple, easy-to-compare sheet, for instance. Right now, she writes, "college-bound students lack the most basic necessities to make comparisons."

Other experts recommend not just standardizing the financial aid letters, but information for prospective students as well—giving them clear data on things like graduation and loan default rates long before they decide to apply.

Again, the issue is not a lack of data as much as a lack of easy-to-find, easy-to-compare data, an aid to overwhelmed students getting ready to commit thousands of dollars to an institution. "The process of college choice involves simultaneously ranking options in multiple ways, relying on incomplete and uncertain information, and receiving little or no support for interpreting the facts that are available," writes Harvard education economist Bridget Terry Long. In a paper copublished by the Hamilton Project and Center for American Progress, she suggests that the federal government pull together a "college scorecard," giving just the facts, and all of the facts, about schools' costs and benefits: graduation and retention rates, alumni satisfaction rates, cost of attendance statistics, alumni salary and employment data, and loan data.

It might seem like overkill. Isn't a lot of this information out there? Don't students just need to Google to figure it out? Doesn't the government already run College Navigator and other sites to help students choose?

It is true that we have tremendous amounts of data about higher education. But it is also true that too often students end up misled, overwhelmed, or confused attempting to gauge the different options. Big, expensive purchases require smart, educated customers. That is why the government created the new fuel-efficiency labels. It is also why the new Consumer Financial Protection Bureau is rolling out simplified, standardized home-mortgage forms. It should not, after all, take a Ph.D.  in statistics to get through the college application process.

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