Grading Higher Education

Giving Consumers the Information They Need

Bridget Terry Long discusses why consumers should be given the information they need to maximize their college investment in this paper jointly released by the Center for American Progress and The Hamilton Project.

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A college degree bestows numerous benefits upon individuals and society, including higher earnings, a lower likelihood of unemployment, an increased tax base, and greater civic engagement. For many, postsecondary training is the gateway to a secure job, nice home, and good schools for their children.

The problem is that going to college is an expensive investment. The cost of four years of college can exceed $100,000, and over a quarter of four-year college students graduate with over $25,000 of student loan debt. Moreover, the college investment is a high-risk proposition. While the average return on a postsecondary credential is substantial, justifying the cost in most cases, there is no guarantee that a person will benefit. Only half of college entrants complete a bachelor’s degree and so many students forfeit the potential returns of such a degree.

At the same time, student needs are changing. A majority of those attending college are no longer the traditional students attending immediately after high school graduation who are reliant on their parents for support. Instead, many are working learners who are trying to gain a variety of college-level skills while balancing family and employment demands.

In addition to being a costly and uncertain endeavor, attending college also requires one to make a complicated set of decisions that must be done in the appropriate order and at the right times. These decisions include whether and how to prepare, where to apply, which institution to choose, and how to finance the costs. There are numerous resources to help students understand and improve their preparation for college, but there are far fewer tools or aids to help families navigate the college selection process.

Indeed, with little help families must sort through a complex menu of postsecondary institutions that differ in terms of level, sector, and focus as well as costs, admissions standards, and credentials and majors offered. Then they must put this information in perspective with their own personal situations and preferences.

Families must also discern differences in quality, or the likelihood that the school will impart learning, support student success, and result in future benefits. Such differences are hard to detect because measurements of quality in higher education tend to rely more on the characteristics of the entering student body rather than the value added by the higher education institution or the benefits realized by graduates. The difficulty in sorting colleges by characteristics and quality is compounded by complicated pricing structures, in which the net price each student pays often differs due to government and institutional financial aid.

In summary, 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. These choices carry on throughout the enrollment experience as students must constantly reevaluate whether their enrollment decision is likely to pay off.

There are many negative and far-reaching repercussions due to the complexities of the college investment combined with the lack of clear information. Not surprisingly, years of research document the general lack of understanding families have about the college enrollment process and their college options. This translates into keeping some students out of higher education, as concluded by the 2006 federal Commission on the Future of Higher Education.

Among those who do decide to attend, there is an overreliance on bad or incomplete sources of information, often at the peril of the student. The fact that nearly half of four-year college students do not graduate highlights why some college investments were probably ill-advised. Coupled with oppressive loan burdens and rising student loan defaults, the evidence of bad college choices grows.

Moreover, the mainstream press increasingly showcases stories of college graduates who find that they do not have the promised skills necessary to get a job. This was exemplified by a recent alumna who decided to sue her school for her inability to obtain employment after graduation.

Colleges may also be culpable of deceiving students. In a 2010 report, the Government Accountability Office exposed a number of for-profit colleges making deceptive claims to applicants, including misleading them about college costs, accreditation, and graduation and job-placement rates. All of this complexity and misinformation results in students too often being “lured to colleges with the most energetic tour guide, the biggest reputation for partying, or the highest ranking in the popular press.”

Some companies also exploit the heightened need for information by charging families excessive amounts for college facts that are freely available elsewhere if one knew how to navigate through the multiple sources that focus on higher education.

Faced with all of these troublesome trends, policymakers are anxious to find ways to give consumers better information about their educational options. In an effort to increase transparency, the federal Higher Education Opportunity Act of 2008 requires colleges and universities to post price estimates on their websites by 2011. There also is an increasing emphasis on college graduation and subsequent employment, as demonstrated by the U.S. Department of Education’s recent decision to require career college and training programs to show proof that their graduates are able to secure “gainful employment.”

Yet most of the current informational efforts are not geared toward the consumer. The Higher Education Opportunity Act, for example, dictates that the institutions with the high- est prices must report to the Secretary of Education the factors that contributed to their price increases and the steps they have taken to hold down costs. As such, the information exchange is one between policymakers and administrators rather than one designed to inform and empower consumers.

There are other tools geared toward serving potential students, such as College Navigator, an online tool that gives families details on institutional characteristics, costs, and other information. However, the families most in need of these types of resources have little awareness about the existence of these tools and limited online access.

Moreover, these tools are missing key pieces of information relevant to college enrollment decisions, such as after-graduation employment and earnings outcomes. While earnings are not a complete picture of the return on a college degree, schools with similar resources, student bodies, and admissions standards can have vastly different returns. Such variation highlights the need for the types of information that will allow students to distinguish between options that may seem to offer the same benefit but actually have vastly different outcomes.

Given the negative effects suffered by families due to a lack of information and the fact that current informational efforts fall short, there is an urgent need to create new solutions. Better information is key to improving college investments. At the individual level, giving students and their families better information would enable them to avoid unworthy college investments that would leave them with substantial debt and little in the form of skills. Instead, information could help them identify the institutions that would maximize their chances for success.

Fostering better choices, and as a result, better educational investments, would also translate into greater productivity for our country and a better use of government resources given the subsidies students receive. Providing better information in a clear, organized manner would also produce significant time savings for families, as even the most well-informed currently have to comb through various incomplete sources for key indicators.

At the level of the educational institution, helping students and their families to become better consumers could increase pressure on colleges and universities to make improvements to their services, thereby raising college quality. Even modest effects would more than justify the costs of collecting and publishing better college information for consumers.

Higher education is indeed a complicated domain with significant challenges, but there is hope that empowering consumers with better information might be an effective way to improve outcomes. As shown by a study I completed with Eric Bettinger of Stanford University, Philip Oreopoulos of the University of Toronto, and Lisa Sanbonmatsu of the National Bureau of Economics Research, helping families with the college application process can be an effective way to improve outcomes.

Improving consumer information has also been a critical part to getting better performance in other sectors. For instance, in the realm of K-12 education, research shows that providing information on school performance helped lower-income families to choose higher-performing schools. Reports also help school principals to better evaluate the effectiveness of their teachers in helping students. It is especially worth noting that such information solutions are far less costly than direct government regulation, which underscores the need to consider such strategies to support other higher education decisions.

Based on the many reasons why better information would result in better college investments, this paper puts forth a set of proposals designed to provide consumers with useful facts about higher education. The recommended strategy is multipronged and emphasizes first the need to expand the types of information collected and produced and then to change the way this information is communicated and distributed to potential students and their families.

As an initial step, the federal government should continue as well as expand its activities to produce the types of information needed to help individuals with their college decisions. There should be information on cost and affordability. In addition to the total cost and net price estimates currently produced, potential students would be given information on aid for low-income students, the debt levels, and loan default rates of previous students. To reflect on the college experience, institutions would continue to report information on expenditures so that current and future students would know where their college is putting their money. Additionally, colleges would be required to give more detailed information on retention and graduation rates, which would then be listed relative to similar peer institutions.

Finally, and perhaps most important, information must be collected on the potential benefits and returns of an institution. Data should be collected on employment rates, salary information, and in acknowledgment that income is not a complete measure of a school’s return, alumni satisfaction rates. Figure 1 summarizes the key pieces of information that would make up a college’s scorecard.

Once the key facts have been collected, this information would then be packaged for families in more usable ways than current efforts. In this paper, I propose three main ways of presenting the college data, each increasing in the level of details given.

First, we must catch the attention of potential students and their families with clear, basic information that is meant to foster their interest in higher education and empower them to ask questions related to key factors of the investment. Such efforts would include a handful of facts shown in Figure 1 on costs, financial aid, and returns to different types of colleges, with the goal being to reach the significant numbers of individuals who avoid higher education due to misperceptions or general lack of understanding. This information also is designed to broaden the horizons of individuals who might have already been considering higher education with the hope that they will be motivated to seek out additional information about degrees or colleges they might not have originally considered.

The second level of packaging would continue the process by providing more detail, including more specific indicators of affordability for different student profiles and success rates. The more complete information would be presented in a way that encourages and facilitates comparison of postsecondary institutions. Depending on the potential student’s interests or residence, a basic list of schools would be generated, but the individual would also be given the chance to add or subtract schools from that list to match their individual needs.

Key information for consumers

Finally, moving beyond the core indicators, the consumer would be given additional opportunities to customize and incorporate other factors and indicators that might be of interest. Colleges and universities could also be involved at this stage by providing indicators they feel speak to the specific attributes of their school.

Proactively disseminating the information is the third recommendation. Additional effort must be taken to translate and circulate it to an audience that may understand little about higher education offerings, pricing, financial aid, or qual- ity. Therefore, the federal government should actively reach out to potential students where they live, study, and work rather than putting the responsibility on the individual to seek out the information on his or her own. This should be done through a series of partnerships with educational, social services, and employment organizations along with other government agencies. For instance, the government should work with college access programs and youth organizations to reach students.

Government informational resources should also be bolstered and branded as the central clearinghouse for higher education information. This would reduce confusion, simplify informational efforts, and prevent the exploitation of families by companies that charge for what should be free. Innovative marketing should be used and schools and organizations should be encouraged to use the government tool so that they can avoid unnecessary duplication. The federal government should also implement procedures to audit the information and solicit feedback from consumers. Taken together, this paper will demonstrate in the pages that follow why consumers should be given the information they need to maximize their college investments.

Download the introduction and summary (pdf)

Download the whole report (pdf)

Read more from the "Creating 21st Century Jobs" series

Dr. Bridget Terry Long is Professor of Education and Economics at the Harvard Graduate School of Education.

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