Shopping for college can be a nightmare. As the market for consumer products has gotten easier, more transparent, and faster than ever before (read: Amazon), the market for college degrees has only gotten more and more opaque. The prices listed on college websites aren’t paid by pretty much anyone, and in order to find out how much you’d be on the hook to pay if you enrolled, you need to pay a fee to apply. And once you’ve done that, good luck interpreting the financial aid award letter that explains your costs and comparing it to that at other institutions. The language used is often misleading and inconsistent across universities. Colleges have been playing an ugly game with pricing by engaging in elaborate price discrimination tactics and using language to communicate costs that leave even sophisticated consumers scratching their heads. Students are left comparing apples to oranges.
But there’s news this week that close to 400 colleges serving as many as 3.8 million students have signed onto a plan to engage in better transparency practices, promising to make student costs more transparent and allowing students to make better informed decisions about where they choose to go to school. This effort has been branded the College Cost Transparency Initiative. In the face of an overwhelming challenge, this is a welcome step, but it’s probably not enough.
The problem of insufficient transparency in college pricing has been long known, first rigorously documented by researchers at the largely progressive New America Foundation. And just last year, the Government Accountability Office released a report stating that action was needed to make college costs and aid awards more transparent.
While industry initiative to solve the problem for students is always welcome, the action the GAO called for was heavier handed. They called for regulation to require colleges and universities to use standard language and format for financial aid award letters. And while “more government intervention” seldom seems to be the answer in higher education policy these days, in this case it’s exactly what we need here.
Without full transparency in pricing, we can’t expect consumers, students, to be able to adequately police the market for college degrees which is necessary for prices to stay in line with value. Without the ability to effectively “shop” for college because of information barriers, like complexity of aid award letters or inconsistency in language, colleges retain the upper hand in being able to allow prices to creep higher and higher, beyond the value they provide.
In short, we need government to police the format of financial aid award letter so that they don’t need to be in the business of policing price and quality. Free and fair markets require transparent pricing and well-informed consumers.
I commend the colleges involved with this effort for putting their time and energy behind an important cause. I would also urge them to follow through on this commitment by advocating for legislation that would require standardized award letters to allow the market for college education to become more competitive and to better serve students.