The real cost of college
Washington Post Dec 19, 2010
Every year, college tuition goes up faster than inflation, and public figures respond with outrage. But the object of their anger is illusory: Tuition is no longer a meaningful number.
If colleges are ever to bring down costs, we have to be honest about what the costs are. If families are to understand the financial implications of a college education, greater transparency is needed. And achieving these goals will require a fundamental change in our vocabulary.
First, tuition rates are meaningless as an indicator of the actual cost of college education. At many private colleges with endowments, the actual annual cost of educating a student is higher than the figure indicated by the price tag. Let’s take, say, Ivy College as an example. At Ivy, tuition plus room and board may be about $50,000. But the actual amount spent by Ivy per student per year is probably more like $75,000 or upward.
This explains why tuition rises so much each year; colleges are trying to make up ground on costs that already significantly outstrip tuition. But these increases narrow the gap very modestly. Colleges generally make up the difference from their endowments and fundraising.
Second, tuition is meaningless as a guide to affordability. At institutions with endowments and healthy fundraising activities, those endowed funds and gifts commonly provide financial aid to students. The sticker price for Ivy may be $50,000, but dealer markdowns bring the average price paid to something more like $30,000. Many students pay far less. But when a young person is exploring colleges, the relationship between sticker price and what families can expect to pay is not at all clear.
Congress passed legislation in 2008 requiring all colleges to publish a “net price calculator” to help families figure out exactly what the relationship is between sticker price and what they can expect to pay. These “net price” calculators should be in place by 2011, and they should help. But they are not enough.
Instead of “tuition and fees” and “financial aid,” we should talk about the “total cost” of a year at college, the “student contribution” toward that cost and the “match,” or the amount a college or university contributes toward the annual cost of educating a student.
Right now, if you visit Ivy’s Web site, you are likely to find language like that in the first chart.
The second chart proposes a more honest alternative.
Our current approach to tuition – reflecting neither actual costs nor what students pay – has significant negative consequences. Students and families are not equipped to think effectively about the financial burden of college or what they are getting for their money (which is generally more than they are paying for). And college administrations and faculties themselves don’t have the clearest frameworks for decision making.
For instance, while the funds directed by colleges toward helping families meet the burden of tuition are designated as “financial aid,” the funds that generally subsidize the difference between the published tuition and the actual cost are not. This means that when colleges weigh decisions about financial aid policy – say, about whether to reinstate loans – only one type of financial aid is guaranteed total protection: the aid provided by means of the general subsidy to those who can afford to pay the total cost. Perhaps college endowments and fundraising should be used to subsidize every student who attends, but to make that judgment and others about cost-control and budgetary priorities, we need an honest, straightforward vocabulary.
Given both the expense of educating a young person and the demands placed on students and families to contribute to paying for that expense, students, families, faculties and the public all deserve that straight talk.
The writer is the UPS Foundation professor of social science at the Institute for Advanced Study in Princeton, N.J.