As Kevin noted yesterday, the College Board’s Trends in College Pricing 2009 yet again shows significant percentage and absolute increases in tuition and fees in every higher education sector for this year. Regardless of how you spin it, college price is still going up while almost every other indicator for consumers plummets.
That is, unless you look at net price. Much as how WHIP and WARP have replaced the mundane pitcher’s win totals among baseball eggheads, myth-busting higher education writers everywhere are rising up against sticker price in favor of this measure, which attempts to show what students actually pay for college. The college board report calculates net price by taking the sticker price and then subtracting federal, state, local, and institutional grant aid and federal education tax benefits.
Not surprisingly then, the net price the College Board presents is much lower than the published tuition and fees:
As the chart shows, every sector’s average net tuition and fee amount is less than half of the published costs for students. At public two-year institutions, the net cost is negative, likely a reflection of the fact that its average tuition and fees is less than the average Pell Grant.
But the more interesting story is what’s been happening to net price over time in constant dollars. Here’s private four-year institutions:
According to these figures, the net price of a private four-year institution has actually decreased in the last six years by more than $1,400 and has remained in the mid-to-high $11,000′s for the last three years.
Think that’s surprising? Here’s the story at four-year public institutions:
According to these figures, the 2009-10 average net tuition and fees paid by students at four-year public institutions is lower than every other year reported by the College Board–figures that date back to the 1994-95 academic year.
The public two-year figures tell a similar story:
Not only are average net tuition and fee prices lower than they’ve ever been, but they’re actually negative.
Talk about two different stories. If you look at the sticker price numbers–the ones that get published in glossy viewbooks, show up on college information sites, and are reported by the actual financial aid office–then college prices are at an all-time high. But look at net price and higher education is the cheapest its been in the last 16 years.
So what’s causing the decrease? Part of it is federal aid. The maximum Pell Grant for this year is $5,350. That’s a maximum increase of $619 in additional federal grant aid for students this year, which would at least account for some of the growth in average tuition and fees. (The size of the tax credit is also supposed to increase with the implementation of the $2,500 American Opportunity Tax Credit in place of the $1,800 Hope Tax Credit, but the College Board based its estimate on the older credit amount.) The two years prior saw increases of $421 and $260 in the maximum award, which also also explain some of the decrease in net price that occurred in those years. The rest, therefore, would be a result of either institutional aid increases or smaller federal grant programs, such as ACG/SMART.
This story should be encouraging for legislators that fought hard to win Pell Grant increases over the last few years. The steepest decreases in net price occur beginning in the 2007-2008 academic year, the same time Congress began passing legislation that boosted the maximum Pell Grant award several times. This at least suggests that the money spent on the program did play some role in lessening the financial burden for students and was not completely eaten up by sticker price increases.
But while decreases in net price are nice, its opacity creates a limit to its usefulness for applicants. High school seniors with an Internet connection can figure out a sticker price in seconds, but they have no idea what their individual net price is going to be until they receive their financial aid package. And there’s no guarantee that package will actually get their bill close the net price number. Instead, they could receive an “admit deny“—a paltry aid package so low that the student cannot actually afford to attend the school.
The uncertainty surrounding net price means that while colleges may claim that the sticker price should not scare students away, it’s hard not to be intimidated when that’s the only clear-cut financial figure they can use for admissions decisions. And there’s evidence that this sticker shock is enough to keep the lowest-income students out of the applicant pool, even if they are likely to have a net price of zero.
The net price figure also lessens the pressure on schools to actually take proactive steps to lower their costs. If the price you list isn’t actually what you charge, then why should anyone care what the listed price is and how high it gets? Net price thus serves as a kind of smokescreen that gets colleges at least partially off for charging an arm and a leg.
The gap created by the difference in sticker and net price also creates opportunity for haggling over awards and other negotiation that can actually increase costs for students. Blackburn College in Illinois actually lowered its tuition by 15 percent last year just by eliminating almost all of its so-called merit aid awards and refusing to bargain over aid packages. Saying a price is a price is a price and then awarding aid based upon the need students have to meet that amount would not only be more straightforward, but it also has the potential to be cheaper.
Finally, net price depends on two of the most confusing sources of student financial assistance: higher education tax benefits and institutional grant aid. Tax credits are overly complex, are frequently used incorrectly, and are poorly coordinated with other forms of federal aid, to name just a few problems. Institutional aid, meanwhile, depends on a series of opaque factors that individual students may not understand. It also includes includes substantial amounts of non-need based aid that could be given to recruit students. Counting these awards in reducing the sticker price for students could give misleading characterizations for students.
Ultimately, the net price figure shows how the usefulness of higher education data varies greatly depending on who you are. For researchers, net price is important for getting a more nuanced sense of how much college actually costs, which can in turn drive policy discussions about what can be done to reduce those expenses. For colleges and universities it’s a moment of good news amidst an uninterrupted series of reports showing the constant growth of college costs. But this utility does not transfer to individual students applying for admission, who have no way of seeing through the opaque calculation to see what their own cost is likely to be, a limitation with significant effects on access policies. As a result, net price reductions should be welcomed, but not become a substitute for actual decreases in that shocking sticker price.