The Cost of Higher Education

Sticker versus net price: the general pattern is that most colleges and universities, particularly private ones, have an artificially high and unreliable sticker price while charging most students, by awarding grant and scholarship money, a "discounted price" that varies considerably. Writer Lynn O'Shaughnessy in US News compared college prices with "airline tickets" since "everybody pays a different fare". Another report agreed:

Sticker price is the full price colleges list in their brochures and on their websites. Net price is the price students actually pay. Net price accounts for the fact that many students receive grants or scholarships. So it can be considerably lower than sticker price.

Most Expensive Colleges (2015/16)
Harvy Mudd College $67,255
Columbia University $66,383
New York University $65,860
Sarah Lawrence College $65,630
University of Chicago $64,965
Bard College at Simon's Rock $64,519
University of Souther California $64,484
Claremont McKenna College $64,325
Oberlin College $64,266
Scripps College $64,260

Discounting began in the 1970s and was dramatically expanded in the 1990s, according to one report. Discrepancy between sticker and average net prices can vary substantially. Estimates vary, but show a consistent pattern of sticker prices being much greater than real costs, sometimes more than double, sometimes only one and a half times as high. Estimates are that 88% or 67% get some form of discount. One estimate in 2015 was that at private nonprofit four-year colleges, the average freshman pays 48% less than the sticker price. Generally, the sticker-to-net price discrepancy is greater at private colleges than public universities. For example, in 2011-2012, the average sticker price for tuition, fees and living expenses at private colleges, was $38,590 while the average actual cost was $23,060; at public colleges, the average sticker price was $17,130 and the average actual cost was $11,380. Another estimate was that the average full-time undergraduate gets $6,500 in grant aid along with $1,000 in tax-based aid to offset tuition and fees. There is widespread consensus that the most cost-effective college option is community colleges, which charge on average only $3,000 for full-time tuition.

Colleges use high sticker prices because it allows them wide latitude in how to use funds to attract the best students, as well as entice students with special skills or increase its overall racial or ethnic diversity. The most sought-after students can be enticed by high discounts while marginal students can be charged full freight. Further, the high sticker price is a marketing tool to suggest the overall worth of a college education, along the lines of encouraging people to think that "schools that cost more must provide a better education."A report by the Pew Research Center found that while there was growing concern about escalating college prices, most Americans believed that their personal investment in higher education was sound.

But discounting adds complexity to decision-making, deterring some students from applying in some instances based on a false sense of unaffordability. In recent years, there has been attention to the problem of bright students from low-income backgrounds not applying to top colleges, and attending less challenging colleges instead or skipping college entirely; this phenomenon has been called undermatching in the sense that these students are not properly paired or "matched" with academically challenging colleges; there have been efforts at some colleges such as Williams to actively seek out bright low-income students. According to NBC reporter Nona Willis Aronowitz, the financial makeup of the student body at elite colleges tends to be mostly affluent students, with some low-income students if the college actively seeks out bright low-income applicants, but few students from middle-class backgrounds. As a result, middle-class applicants are increasingly faced with a tough choice: to either attend an elite school, paying close to the sticker price, and graduate with substantial debt, or to attend a publicly supported state school with less debt; Aronowitz described this as the "middle class squeeze". In 2015, however, there were several instances of private colleges reducing their tuition by more than 40%.

Net price calculators: In the fall of 2011, colleges were required by federal law to post a net price calculator on their websites to give prospective students and families a rough estimate of likely college costs for their particular institution, and to "demystify pricing." A student or family could go online, find the calculator at a college's website, and enter the required financial and academic information, and the calculator should tell them an estimate of the likely cost of attending that college. The first online calculators were started by Williams College. The online calculators look at financial need and academic merit to try to estimate the likely discounted price offered to a particular student from a particular college, using information including details from tax returns, household income, grade point averages and test scores. Schools vary in terms of their pricing formulas; some consider home equity as a factor while others disregard it. Lynn O'Shaughnessy recommends that families shopping for colleges go to a college's website and use the net price calculator to get a personalized estimate of cost.

There are numerous potential problems with the calculators. Some are difficult to find on a college's website; others require specific financial numbers, possibly leading to errors by parents or students; some are difficult to understand and use; some may be manipulated by schools to increase applications or to make it seem as if a college is "more affordable" than it is. Accuracy of calculator estimates may vary considerably from college to college. Ultimately aid decisions will not be made by calculators, but by humans in the admissions offices.