Today’s college prices could easily come as a shock. Annual published tuition fees at higher education institutions regularly exceed $ 55,000, and it is unusual for state flagships to list tuition fees for students outside the state of $ 25,000 or more.
These are staggering figures when the average family income in the U.S. is less than $ 68,000 and families have to pay for non-tuition expenses. However, only the wealthiest students pay these prices for stickers, as many institutions offer significant financial aid packages without funding in a practice called a tuition discount. But few students and their families know how much a college will actually cost if they apply, forcing some to drop out of institutions they can afford.
Philip Levin, a professor of economics at Wellesley College, argues that the opacity of college prices is detrimental to both families and institutions in his new book“Adaptation problem.”
Ideally, students would go to the institutions that suit them best, Levin said.
“Some people are good for Ohio or four-year government agencies. Some students are great for public colleges,” Levin said. “But if the reason all people fall into the categories they fall into is pricing and a misunderstanding of pricing, that’s the problem.”
Institutions are also not happy with this system. Top-ranked private colleges worry that they are not recruiting enough low-income students, while their less selective counterparts are forced to offer assistance to attract students. Government agencies are concerned that they are short of students enrolled in public colleges. And two-year schools are concerned about prospective students who are considering dropping out of college because of estimated costs.
“There are all these misallocations of students,” Levin said.
Senior Ed Dive spoke with Levin about what prompted the book, what he learned by researching college prices and what can be done to improve the system.
This interview has been edited for clarity and brevity.
HHIHER ED DIVE: Was it your personal experience that prompted you to write this book?
PHILIP LIVINE: A little. I am an economist – I earn a good living – and I have been postponing college since the day my children were born. But since they were about 12, 13, 14 years old, I just wanted to know if I had saved up enough money, and for that I needed to know what college would actually cost me.
I wanted to know if I was eligible for financial aid, and realized that, in fact, this question is impossible to answer. That’s where the very long process for me began. I realized that if this is a problem for me, then it should be a problem for other people. I have a Ph.D. in economics. I am very good at working with numbers and understanding things, and I could not understand it.
What are the most common ways institutions make this information difficult to understand?
The system itself makes it difficult for families to understand. The only figure the federal government requires institutions to report is what is called the cost of attendance, which is the full level of tuition, plus accommodation and meals and the estimated cost of other expenses – toothpaste, books and the like.
Just the vast majority of students do not pay that price. I like to think that this is the maximum cost of a visit. $ 30,000 is not uncommon on the website of the state university. For a private elite institution, $ 80,000 is not uncommon. Most students don’t pay these amounts, but it’s a figure in everyone’s head.
There was some recognition that this was a problem. In 2008, an amendment to the Higher Education Act was passed requiring all colleges and universities to introduce net price calculators. It’s a tool designed to help you understand how much a college will cost given your circumstances, and it’s great.
This is a very targeted intervention that just didn’t work very well in practice. These tools usually require people to enter information that is difficult for them to enter. They ask you about your tax information. People don’t like taxes. Once you start asking them about taxes, you lose them, so these tools are usually not very successful.
Who is most affected by these problems?
Obviously, this is more of a problem for low-income students who believe that the cheapest option is not the cheapest option. Or those who think that what they can afford, they cannot afford.
You may still have accessibility issues. One of the things I’ve recorded in the book is that even if you have perfect information, there are many cases where college is still not available to you.
If a student’s family can pay almost anything to send their children to school, we can’t force those families to pay $ 15,000 a year. It doesn’t work. That $ 15,000 partly includes loans and tuition, but there is also a monetary component – how much do you have to write a check for? Most institutions take a figure from this family, such as $ 5,000.
How should they come up with this?
Some experts have told me that students are sensitive to larger aid packages, which gives institutions an incentive to keep prices where they are. How do you feel about that?
If you’re from Harvard and Yale University, you don’t need to offer merit help because you can charge as much as you want. These institutions have enormous market power. This is great for them because higher income students pay these large sums, which provides more income for the university to provide financial assistance to students who cannot afford it. They also have very high hopes. The financial aid system works best at this level of the institution because they have enough money in the system to make it work.
Government agencies cannot charge $ 80,000 because there are laws that prevent them from doing so. The state sets tuition fees, and they choose a figure of, say, $ 30,000. Students with higher incomes who can afford more are not required to pay more. These students are most heavily subsidized by the system. This limits income in these institutions. And then, because there is a lack of direct state aid, these institutions do not have enough money to provide sufficient financial assistance to low-income students. So they take the same from low-income students.
Then you get to other schools – private schools that don’t have big funds or huge market power. You can’t charge $ 80,000 because no one will come. Maybe $ 60,000 or $ 70,000. This is still too much, so they are forced to help almost all of their students. Once one school does, all schools should do it. It doesn’t end with a change of who goes where because everyone gets the same discounts. But it reduces the profits of the institution. And this, again, makes it difficult to train institutions with sufficient financial assistance for low-income students.
You claim that the solution to these problems is additional sources of funding. What are they?
Institutions with enormous resources make the financial assistance system as generous as possible to overcome these challenges. For example, Williams College has just announced a system of financial aid that is provided only by grants. Most schools are not at this level – they do not have the resources – and competition between them does not allow them to earn enough to lower the price for low-income students.
The money should be from the government. My preferred solution to overcome this problem is to double the Pell grant. This provides the right amount of money to fill the gap to cover expenses that low-income families cannot otherwise afford.