Colleges Can Rebuild Public Trust with Price Transparency

Public trust in America’s colleges and universities has plummeted. High tuition is an obvious part of the explanation. But according to one elite institution, an even more important factor is a frustrating lack of transparency in pricing. The tuition is too darn high—and it’s near-impossible to figure out what it is.

Yale University has issued a new report on why the Ivory Tower lost the confidence of most Americans. There’s no single determining factor, but among the most important reasons for public skepticism of college is price. Yale should know. Including room and board, next year it will charge undergraduates a sticker price of $94,100.

That outrageous price tag isn’t what most students will actually pay out of pocket. Universities use financial aid to discount each student’s individual price to whatever they estimate the family can afford. But this means it can be impossible to know how much you’ll pay for college before you apply. Roughly 18 percent of students pay full freight, while others receive tens of thousands of dollars in aid that slash it to nearly zero.

The Yale report puts it bluntly:

“This system has lowered the expense of college for individual students and families, which has not risen as much as the headlines suggest. But it has had a disastrous impact on public trust. By its nature, the system is complicated, unpredictable, secretive, and highly variable. These factors tend to reduce trust rather than increase it.”

Using financial aid to charge students different prices isn’t inherently bad. Students who grew up in poverty should pay less than children of millionaires. Many other industries use differential pricing—just think of senior discounts at movie theaters.

The problem with college tuition isn’t differential pricing but the lack of transparency. Students don’t know how much financial aid they will receive—and therefore what their out-of-pocket price will be—until they apply to college and receive an acceptance letter. That makes it harder to understand what college will cost, and harder to walk away from a bad deal. Imagine buying a car and not finding out the price until after you’ve signed the paperwork.

Some colleges have taken steps to provide more transparency upfront. Starting next year, Yale will guarantee free tuition for students whose families earn less than $200,00 per year. Families earning below $100,000 will have room and board covered too. Other institutions have launched similar initiatives. These programs may not require a huge new investment in financial aid—many students from low- and middle-income families already qualify for large scholarships—but they provide transparency and certainty to prospective college students before they apply.

But colleges could do more. Many schools have tried to provide price transparency with online calculators where students can enter their personal information and receive a price estimate. But these are often imprecise and rely on older data. And the calculators are not binding; a school need not honor the price its calculator advertises.

To get serious about price transparency, colleges should offer guaranteed prices before students apply—much as you can look up airfares online before buying a ticket. Preston Cooper of the American Enterprise Institute has explained how it could work: colleges would share their financial aid formulas so that any family could calculate how much aid they would receive.

This system would allow students to understand how much a college would cost them before going through the arduous application process. Schools providing generous financial aid could also benefit by helping students look beyond the sticker price. Case in point: when the University of Michigan promised guaranteed scholarships to prospective students, applications and enrollments soared .

If multiple schools participated, the system could even facilitate price comparisons across institutions. Imagine Kayak or Expedia, but for higher education.

Transparency in pricing won’t fix the crisis of trust in higher education by itself. Universities have much more work to do: restoring fairness in admissions, upholding free speech, tackling grade inflation, and streamlining administrative costs so they don’t have to charge such high prices in the first place. But providing an upfront, guaranteed price in lieu of the financial aid roulette wheel is a necessary first step.