How the College Admissions Process Can Stick You with a Higher Price

Unless you’ve had to fumble your own way through the college search process recently (as a student or as a parent), you might be tempted to discount stories of students graduating with crazy-high student debt as silly financial decisions made by naive folks. After all (you might ask), how could someone come out of college with such massive debt when there are plenty of less expensive schools?

Although we can’t presume to know why some people do what they do, we can take the publicly available college pricing data and see if it’s plausible that someone could make rational financial decisions using the available information and still end up paying more than they should–or could–have paid.

So first, let’s outline how the college search process plays out in most cases.

1. You know that you want to go to college.
2. You know that you only have so much money to pay for college.
3. You have access to some information, but you certainly aren’t an expert on college admissions.
4. You assume that similar schools give similarly-sized scholarships to similar types of students and therefore assume that the sticker price is an appropriate gauge of which schools will be more and less expensive for you.
5. You don’t have the time or the money to apply to every possible college or university, so you narrow your choices to a set of finalists and (see bullet point #4) your educated guess about price is one of the factors you use to narrow your list.
6. You are accepted to some of the schools to which you applied, and you now assume that your choices are limited to the schools that accepted you.

Then let’s take a hypothetical individual; let’s say that someone wants to attend a challenging college or university in Boston (you can run this same scenario in any region of the country and get similar results).  I’ve picked three well-known institutions that would be a reasonable fit: Boston College, Boston University, and Northeastern University.  Let’s posit that our hypothetical student is typical academically for the kind of student that is accepted and enrolls at each of these institutions.  In other words, she has a very high GPA and a composite SAT in the low to mid 1400s.  As a result, let’s assume that she will be accepted and offered a financial aid package of scholarships and grants that end up charging her the average actual price.  We will have to make do with the most recent pricing data available – prices paid by students entering in the fall of 2017 (yes, the time lag in current available data is another problem, but one we won’t be able to tackle that fully today).  And let’s posit that, like most students, price matters a lot and she (and likely her parents as well) will be borrowing to pay for college.

The Department of Education collects pricing information from all colleges, and I’ve pulled a few key data points from the Integrated Post-secondary Education Data System (IPEDS).  Schools must report a “total cost of attendance,” which include the listed tuition, fees, room and board, and an estimate of books, travel, and other necessary expenses.  Schools must also report the average actual price that students pay, calculated by subtracting the average amount of federal, state, and institutional grants and scholarships awarded from the the total cost of attendance.  Finally, colleges must report the average actual prices paid across five different income categories: families making between 0 and 30,000 dollars per year, between 30,000 and 48,000 dollars per year, between 48,000 and 75,000 dollars per year, between 75,000 and 110,000 dollars per year, and above 110,000 dollars per year.  Have a look at the price tags below.

Let’s look at these prices in the order in which they would be revealed.  If our hypothetical student uses the sticker price as an indicator of which institution will end of up being the least expensive (a reasonable assumption), she would lean toward Northeastern, since their sticker price is the lowest of the three.  If our student is like many who don’t have a blank check to spend on college applications, she might only apply to one or two of the three schools, but probably not all three.  So rational decision-making would likely lead our bright young mind to apply to Northeastern and either Boston University or (although slightly less likely) Boston College.

So what happens when she gets accepted and sees the financial aid packages she is offered?  Unlike the sticker prices, we can see that the range of most to least expensive institutions is reversed. Although Boston College and Boston University were about $3,000 more than Northeastern, when financial aid awards arrive Northeastern is almost $8,000 more expensive than Boston College and just over $5,000 more expensive than Boston University.  What’s more, if you look at the differences in average actual prices across the different income brackets, Boston College would be the least expensive of the three institutions in every category except families making more than 110K/year, and Boston University jumps into the most expensive spot in four of the five income categories.

But the problem for our hypothetical young student is that she doesn’t have the benefit of this table.  We only know these prices because they have become public two years after the fact.  Moreover, since our student only applied to two of the three institutions, she has no idea what that third institution’s price would be.  If she applied to Northeastern and Boston College, fortune has smiled on her.  But if she applied to Northeastern and Boston University . . . ugh.  Imagine if her family’s income is less than 110K/year.  In any of these situations, we have a student who is going to pay substantially more than she could have paid, if she had only known.

You can find a combination of relatively similar institutions in every region or metropolitan area in the country where this same scenario plays out like clockwork.  Still wondering how it is that so many students end up with disproportionately high debt?

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