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Op-Ed

A Clearer Approach to College Costs

Robert E. Litan

Among the many complaints about the U.S. health-care system is its opacity when it comes to prices consumers actually pay. Few doctors tell patients about costs, partly because they don’t know themselves; insurers have the last word. All health-care economists I know of—whether or not they support the Affordable Care Act—have supported more price transparency so that patients can make better decisions about procedures or tests of limited value, or better understand whether a doctor is ordering such things to reduce the chances of a malpractice lawsuit.

Now comes Phillip Levine of the Brookings Institution to tell us that college prices work pretty much the same way. There is the sticker price and then there are actual prices, net of the best financial aid that students and their parents can negotiate.

But many students and families do not realize they can bargain. And when they do, they have little or no idea of what they realistically may gain.

Does this lack of transparency matter? Mr. Levine argues that it does, especially for students wanting to attend private, highly selective colleges. Given the high price of such schools—which for many families can exceed the cost of buying a home if they don’t receive financial assistance—it simply defies common sense that prospective attendees don’t have sufficient information to know whether they can afford a college before applying.

Mr. Levine suggests that federally required disclosures of the average net price, which are arranged by broad income category of an applicant’s family, aren’t helpful because averages can be heavily influenced by outliers in financial aid packages. Such aid may be determined on the basis of more than a family’s income. He suggests that colleges instead use simplified financial calculators that account for the multiple factors schools use to determine aid—of the kind that he developed for Wellesley College—and that they publish net median prices by income category, since medians eliminate the effects of outliers.

Now, if only health-care providers would do something similar.

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