Still following college sticker prices? Ignore them, report says

A college’s published cost of attendance, known as the “sticker price,” can often conceal what students and their families actually pay for college, and “the practice of tracking it should be exercised with extreme caution,” according to a new report from The Brookings Institution. The analysis explores trends in the true cost of college for families in different economic circumstances, concluding with a call for “much better information” as stakeholders across higher education work to increase access and affordability.   

‘The myth of what it costs’

U.S. colleges are required to publish their sticker prices, which include tuition, fees, course materials, food, housing, and other educational and living expenses. Sticker prices have risen in the last two decades, with experts predicting they will soon cross six figures at highly selective institutions.

“People hear that $100,000 and then they just make these assumptions that that’s what college costs,” Courtney Brown, Lumina vice president of impact and planning, tells CBS MoneyWatch. “That one story becomes the myth of what it costs.”

Those sticker prices deter many students from attending college, even if they see the value of a college education. A new Gallup/Lumina Foundation survey found that 56% of adults who never enrolled or who previously enrolled in college said cost was a “very important” reason they either didn’t attend or didn’t continue their education. Yet, 77% of U.S. adults cannot estimate the annual net cost of a bachelor’s degree from a public college within $5,000 of the actual cost.

Related: Over 360 colleges pledge to give students clearer, more accurate financial aid offers >

The truth about college costs

Lost in the confusion about rising college costs is the fact that most students generally pay much less for college than sticker prices would indicate. “The sticker price is an increasingly poor indicator of college prices for all students, regardless of family income,” Phillip Levine, a nonresident senior fellow at Brookings who conducted the analysis, says in the report. Instead, Levine focuses on “net prices,” calculated by subtracting from sticker prices grant-based financial aid students receive from their schools and state and federal governments (not loans or subsidized work) to arrive at the amount students are actually asked to pay.

Related: The ‘August surprise’: When more outside scholarships lead to less financial aid from colleges >

“Our current system of setting and communicating college prices simply does not work,” says Levine. “We cannot expect students to make sound decisions regarding educational investments if they do not understand how much college will actually cost them.” 

Incomplete information about college tuition misleads students and their families, as well as public officials making higher education policy decisions, and the media that reports on rising college costs.

Few students pay the full sticker price for attending college, and the share of students who do so has fallen over the last two and a half decades. In 1995-96, 53% of in-state public college students and 29% of private, nonprofit college students paid the sticker price. In 2019-20, those rates fell to 26% of in-state public and 16% of private college students.

Sticker prices increased across that time frame, but more so than net prices. Between 1995-96 and 2019-20, sticker prices at both public and private nonprofit institutions rose around 70%. Average net prices, meanwhile, increased by 44% and 24% at public and private nonprofit institutions, respectively. For lower- and middle-income students, net prices stopped rising around the 2007-08 academic year and have stayed roughly consistent.

Who receives tuition discounts?

Most college students receive some form of need- or merit-based financial aid. Eligible students receive need-based aid based on data from their Free Application for Student Financial Aid (FAFSA), used to calculate their Student Aid Index (a methodology introduced with the new FAFSA that replaces the Expected Family Contribution). Some colleges also are reducing tuition for students from upper-income families, even if they have no demonstrated financial need and are able to pay their school’s full sticker price.

These students receive “merit aid” based on strong academic performance, rather than need-based aid. At many colleges, a large share of students receive merit aid, and at some schools, this aid is available to all students. From 1995-96 to 2019-20, the share of higher-income students at public colleges paying the full sticker price declined from 79% to 47%. At private institutions, the share fell from 64% to 28%. Colleges publish a high “sticker price to signal institutional quality while awarding ‘merit aid’ to signal support for admitted students,” writes Levine. 

Some colleges are “resetting” how they approach sticker prices to better reflect net costs, including Virginia’s Bridgewater College, The New York Times reports. Bridgewater announced it will reduce its published tuition amount starting next fall by more than 60% from $40,300 to $15,000, after finding that few students were paying the full sticker price. Since its announcement last year, the college has seen a 30% increase in applications for the upcoming year. Researchers from Ithaka S+R and the University of Toronto have found that tuition resets lead to increased enrollment of Pell Grant-eligible students.

Next steps

Despite the availability of need- and merit-based aid, higher education is still too expensive for middle- and lower-income students, the report says. To improve college access and affordability, stakeholders need better information about how much middle- and low-income students really pay for college, and how those costs have changed over time. “We cannot expect improvements in the market for higher education if we do not know the facts,” says Levin. “This report is a step in that direction.”

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