The First Step Toward Smarter College Investment

Transparent Tuition Information Is Welcomed, but Value Also Matters

The Department of Education took a big step toward ensuring students have the information they need when it released its “tuition watch lists” on July 1. The lists, mandated in the Higher Education Act, provide an easy reference for students, taxpayers, and policymakers on the colleges with the highest prices and the fastest rising costs.

Congress and the Department of Education hope that providing better information will help students make smarter investments in college. But students and families need to understand the value of the college program they choose, not just its price. So tuition watch lists are a starting place for better consumer information, not the finish line.

These lists will be most useful if students, parents, and policymakers use them to help ask questions about the value of their investment in college, and if Congress and the Department of Education answer those questions by requiring colleges to account for the quality and cost of the services they provide as well as the price they charge.

The charts below illustrate how tuition data raise more questions for taxpayers and students than they answer—and that is exactly what they should do if they are to begin a movement toward smart investment in higher education.

Net price vs. tuition prices

The sticker price charged at a college is very different from the price most families will ultimately pay once federal and institutional grants and scholarships are subtracted. The fact that Sarah Lawrence or Vassar College—two of the most expensive four-year private colleges—has extremely high tuition is less important than what the average student ultimately pays. The chart below illustrates the difference between sticker price and net price at some of the most expensive private four-year colleges.

The average net price varies quite a bit even though the list price is very similar across the five colleges in the chart. To help consumers make better decisions, policymakers and college officials must devise ways to make the net price of college more apparent to students and families.

The Higher Education Act requires net price calculators to be posted on every college website by October, but preliminary research shows that the implementation will determine just how helpful the calculators will be. We must ensure that the idea that net price matters more than sticker price becomes common knowledge to families, particularly low-income ones, and that the calculators are both accessible and reliable.

Tuition vs. cost of education

Knowing that the tuition prices at some universities are high—as high as $40,000 a year—should set off alarm bells for families. But that high tuition number should lead to another question: What do I get for $40,000? And how does that differ from what I’d get for $30,000 or even $20,000?

Colleges offer very little information to answer this question. The Delta Cost Project is making great strides toward clarity on how colleges spend their money. The chart below shows that though the institutions that top the list for private school tuition charge similar prices, they report very different spending for instruction. This raises even more questions. If colleges aren’t spending much on instruction then what are they spending on?

And what does it mean that Columbia University’s spending on instruction is so much higher than other schools? It could mean that they are counting something as “instruction” spending that other colleges do not. It could mean that they have superior instruction because they invest more money in it. Or it could mean that they are wildly inefficient compared to other institutions and are paying too much to achieve the same results.

To make sense of high tuition prices, we need some more information. First, we need to know how tuition revenue is spent. Next, we need some measure of the outcomes that the college achieves—in terms of student learning, research goals, and perhaps even employment outcomes—to begin to gauge the value that students get for the additional tuition dollars.

Tuition vs. public subsidy

The difference between sticker price and net price is one reason why it’s difficult to understand how the price charged translates into colleges’ revenue. Since colleges charge high tuition then discount it for many families, the revenue they derive from tuition can be substantially less than one might imagine.

At public colleges and universities, this opacity between the price charged and the revenue is further compounded by the fact that the colleges are subsidized by the state’s contribution of tax dollars. So understanding whether a college gets good outcomes for the money it spends means we need to add back in the taxpayer subsidy to see all the money it actually has available to spend. The following chart shows that some of the most expensive four-year public colleges are spending more on education than you may think, when you consider both tuition dollars and public funding.

The chart shows how the high or low price of tuition at public colleges and universities does not really say much about how much the education provided at the college actually costs. Some institutions have low tuition because they provide low-cost services. Some have low tuition because they are more heavily subsidized by the public. And though that distinction brings more clarity to the college’s expenses, it says nothing of the value the school provides for the money.

Money is tight for families, governments, and for many colleges. More information is one way to ensure that families and policymakers use the money they have wisely. It has to be the right information, though. The tuition watch lists are a step toward better investment in college, but only if consumers and advocates continue to ask the right questions and demand better information.

Julie Margetta Morgan is a Policy Analyst at American Progress.