Buying a Refrigerator, Choosing a College

A recent New York Times editorial gave welcome support to efforts to pressure colleges and universities to provide clearer information to prospective students about how much it is likely to cost them to earn their degrees. Of course, the institutions that stepped up to the plate are likely those that already are trying hard to communicate clearly. Those that hope to trick students into enrolling in programs that are really beyond their reach will probably be at the back of the line in these efforts.

College pricing is complicated. Students need much more and much simpler information. Waiting for perfect data instead of moving forward in the direction proposed by the Obama administration risks making the best the enemy of the good. If we wait until we can explain perfectly, we will wait forever.

That said, the idea that we can provide standardized, simple information about, for example, “estimated monthly payments for federal student loans that the student will likely owe upon graduation” raises some red flags. Even though the school should know at the time they send award letters to individual students how much grant aid the students will receive from all sources and how much federal loan is in the aid packages described, they don’t know how much the students will actually borrow. They don’t know what the package will look like in the coming years. They don’t know if the parents can fund their expected contributions or will ask the students to take additional federal loans or even private loans. So the monthly payments are obviously an estimate. That has to be made very clear.

More worrisome are the misunderstandings that could arise from the scorecard that will provide general information on net price, value, and whether students can pay back their loans. This information cannot be personalized to students’ individual circumstances. Every student pays a different net price. So deciding to enroll in a school because on average students get generous grant aid and don’t borrow much could be a real mistake for the student who for some reason does not get that generous grant aid. Or for the student whose parents don’t come up with the expected contribution, leading to above-average debt. On the other hand, students could be discouraged from enrolling in a school that will work well for them if it turns out they would have qualified for greater than average grant aid.

According to the New York Times, “The goal is to allow families to comparison shop for college the same way they do for houses, televisions or refrigerators.” Purchasing a house is quite a bit more complicated than purchasing a television or a refrigerator. It’s not surprising that Consumer Reports rates only the latter two and that fewer people make serious mistakes in those purchases. Of course, refrigerators and TV’s cost much less than houses or college education. But they are also much less varied. Most people want refrigerators to keep their food cold and they can see quite clearly whether the freezer is on the side or the top.

Houses are the most expensive thing most people will ever buy. They almost always require debt financing. People frequently have trouble resisting borrowing a little more for an extra room or a nicer yard. And they can’t actually see all the inner workings that might cause problems over the long run.

But “buying” a college education is so much more complicated even than buying a house. The decision about a liberal-arts college versus a large university with a strong communications program, a community college that will prepare you for transfer to a bachelor’s nursing program, or a technical college to learn welding is not quite like three bedrooms or four. But the really challenging task is comparing institutions that sound similar. Subway ads, viewbooks, and even campus visits can create inaccurate impressions. No rating system can measure the compatibility of one’s interests, skills, and personality with specific schools.

There are parallels to housing in understanding the different types of financing available and recent history makes it clear that a lot more information is necessary here. But in discussing mortgages, the idea that current earnings predict future earnings is a reasonable starting point for determining the amount to borrow. There is no parallel for college because the whole idea is that future earnings are likely to be significantly higher than past earnings. How much higher? How much debt will be manageable? What is the probability that you will complete this program? How long is it likely to take?

We can’t give up on providing better information for prospective students. But we can’t satisfy ourselves with the idea that there is a simple set of numbers that will allow people to make wise decisions. We need all those numbers. But we also need a lot more guidance and personal support for students and potential students who are seeking to improve their lives but don’t have the necessary support networks to make good decisions. Colleges and universities can certainly help. But we really can’t expect the sellers in this complex market, even the ones we trust, to solve this problem on their own.

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