The government is complicit in the mess around university costs.You can solve it with simple steps

Let's be honest: College costs are complicated. Given the complexity of the financial aid system, this is not all that surprising.

The federal government recognizes this problem and has made several well-intentioned attempts to clarify its costs. Unfortunately, some of these efforts are ineffective and, in some ways, are making the problem worse. However, there are some simple steps that can help.

Paying for a college education is not like buying a dozen eggs, which cost the same no matter who buys them. The cost of a college education varies depending on your family's financial situation and, for many institutions, your academic background. This makes it difficult for students to know how much it will cost to attend a particular university.

The federal government is trying to help families better understand these costs. For example, the Higher Education Act of 1965 was amended to require schools to publicly report their “cost of attendance” (COA), defined as the total amount of a student's education-related expenses. A COA is colloquially referred to as a “sticker price.” This is different from the “net price,” which reflects the amount a student pays after financial aid. Public discussions about the cost of college often focus on sticker prices.

However, very few students actually pay that amount. Students from low- and moderate-income families often receive need-based financial aid and therefore pay less for tuition. Students from high-income families often have lower tuition costs because they receive merit aid. She is only one in seven dependent students attending a four-year college full-time who pay list price. Why should you report to the school a higher fee than most students pay? It will only cause confusion.

Still, it may be helpful for students to know the maximum price they may face. My recent analysis shows that at public and private universities, students who currently do not qualify for need-based financial aid spend an average of $29,000 and $53,000 net, respectively. By comparison, the average sticker price is $33,000 and his is $71,000. Requiring schools to post these numbers is far more beneficial than forcing schools to report numbers that most students won't pay for. At the very least, it would help clarify costs for students from high-income families.

But what about others who might qualify for need-based financial aid? The federal government tried to help them by requiring agencies to provide a “net price calculator.” The idea behind these tools is simple. Enter basic personal and financial information to receive a net price quote. This estimate is non-binding, but it can give students a better idea of ​​how much college may cost them.

However, the great goals and actual implementation of these tools are different. They are often not easy to use and can be difficult to find. Congress recognized these problems and put forward proposals to solve them. One recent bill includes provisions for a universal net price calculator. Current tools vary by institution, and a common interface would be very helpful.

But again, the devil is in the details. Such a universal tool should be consistent with the prerequisites of only basic personal information and finances. Creating financial aid mini-forms or requesting detailed personal information defeats the purpose. Simplicity is very important and proposed legislation should focus on that.

The Department of Justice is also of no help. In this area, the goal is to prevent price fixing among universities. As an economist, I can say with certainty that antitrust policies are generally beneficial. But collusion is not necessarily a bad thing.

The issue here is the widespread use of merit subsidies that institutions rely on to recruit students. You may be wondering why private universities charge an average sticker price of $71,000 when tuition for students in financial need averages $53,000. Why don't they set the sticker price to the lower of the two costs?

reason? marketing. Many institutions award merit awards to nearly all students. really? all Do you have any achievements? Probably not. But high sticker prices convey excellence, and hefty merit awards make students feel good. It sells. Once an institution adopts that strategy, other institutions will need to follow suit or they will lose students. But if all companies adopted that approach, no company would have a competitive advantage. In economics, this is called the prisoner's dilemma.

Collusion is the appropriate solution. All universities could agree to set realistic sticker prices and limit these merit awards. That way, students will have a clearer picture of the true cost of school. In this context, collusion should be allowed. But fear of legal action from the Justice Department is a major obstacle to doing so.

Government involvement in markets is not necessarily a bad thing. It just needs to be done in a more thoughtful way than sometimes happens. Policymakers need to help students and their families understand the costs of college and make more informed decisions.

The cost of attending college isn't as simple as the cost of a dozen eggs, but it shouldn't be rocket science.

Philip B. Levine is the Katherine Coman and A. Burton Hepburn Professor of Economics at Wellesley College.