Equating an Education with the Cost of an Automobile

by Dr. Watson Scott Swail, President & Senior Research Scientist

Today’s InsideHigherEd.com article, “Promoting Financial Transparency for Students,” focused on new legislation in Congress to make the cost of higher education more transparent and simpler to understand. The article quoted Laura Keane of uAspire, a non-profit, saying that “When you buy a car, you walk up to a car and you see a window sticker that has common terms and common definitions presented in a common way,” making the argument that higher education works differently.

It harkens me back to a college affordability hearing on Capitol Hill 20 years ago. A student was testifying about the exorbitant cost of her student loan, to which John Boehner, the future Majority Leader and Speaker, asked her, “Do you own a car, and did you buy that car?” He asked how much she paid a month for her car and how much for her education loan, summing: “well, you were able to go out and buy a car with a loan but somehow your loan for higher education is too high?” [paraphrased by the author].

My point herein is not whether Boehner was right or wrong, but that the comparison of a car to higher education is not a fair comparison and those types of analogies should be reconsidered.

It’s appropriate that elected and non-elected policymakers work to make college more accessible and affordability for all students, especially those from low- and middle-income families. Simplification of the FAFSA is nothing new. We know that the FAFSA remains a barrier to low-income and other students in terms of applying to college. Almost every administration in the last quarter century has taken a whack at simplification. Bit by bit, it gets simpler, although there still exists a call to eliminate the FAFSA altogether and use tax documents for asset and earning information. But the quest for a more transparent and simpler way of understanding the cost of college has been and will continue to be a major focus of federal policy.

When someone buys a car, there is a Manufacturers Suggested Retail Price (MSRP), what we know as the “sticker” price. And then there is the price that someone actually purchases the car for. Over the years, these numbers have become more similar as there is less dealing and haggling than ever. Go into a CarMax or Carvana: they don’t negotiate price. Even on new cars, manufacturers may provide an incentive for military members, new college grads, or older models: something to get buyers into their dealerships. But the math is pretty simple. Thus, car prices are relatively “static.” They don’t move much beyond incentives.

Higher education is a different kind of hot mess where the price is malleable or variable. First, let us start with the understanding that the US system of higher education is the largest and most diverse system in the world, with public, private non-profit, for profit, small, large, less-than-two-year, two-year, four-year, graduate, military, and more. The rules and regulations of all colleges are set by federal, state, and local governments, as well as by accreditation organizations and institutional boards and trustees. The essence of higher education is very, very complex.

The price of higher education is not set by the federal government. Nor is the price directly set by the institution, while the price of a car is set by the manufacturer. The federal government, for its role, only has real control over the payment of tuition and fees through their grant and loan programs, although they rely on accrediting organizations to provide proof of excellence, so to speak, to be able to participate in the Title IV funding programs. State governments either set or provides parameters for tuition pricing at public institutions, but even then, most institutions have some control of their tuition and fee charges. Oh. And those fee charges. Those are almost exclusively an institutional thing which can drive the cost of a degree up significantly. None of this discusses the relatively free range of private, not-for-profit and for-profit institutions. They reside on the western frontier of higher education, with much less public policy strings in their way.

Then there are the subsidies, because tuition only covers a fraction of the cost of a higher education. There are the direct and indirect subsidies from the federal government (e.g., R&D funds, special targeted programs through various agencies, etc.), state subsidies to higher education, and private funds (donations, etc.) that all impact the pricing of a degree. Keen readers will surely understand that my point only scratches the surface of the complexity of the pricing and cost of higher education.

On top of this entire structure are the grant and loan systems at the federal, state, and institutional levels. The federal government requires the FAFSA in order to gauge the ability of families or individuals to pay. We call this “means testing.” The data from the FAFSA determines how much grant aid (e.g., Pell Grant, etc.) a student may get, how much subsidized loans they may receive (those where the federal government pays the interest while in college), and how much unsubsidized loans (student is responsible for interest charges during college) they may receive. Then the state has their systems of student aid which mimic, to some degree, the federal system. Near the end of the process, the institution determines how much it will either provide in direct grants to students (called institutional grants) or by discounting their tuition. Dizzy yet? We haven’t even gotten to third-party philanthropies and “last dollar” grants, which are then thrown into the calculation of the price of a higher education.

This is the system we get when we have so many players involved. If the federal government was not involved, it would be simpler at the state level. But that would be enormously problematic for students who wanted to cross state lines. It would be simpler if the federal government created “federal institutions” and could just deal with those and not concern itself with the “other” institutions. But that doesn’t work for a number of reasons. It might for correctional institutions, but let’s not compare those with higher education. We could make the entire system “private,” but then there would be an even bigger access and affordability that would force the various levels of government to become involved. There is no shying away from the public responsibility for higher education.

So back to the cost of a car versus the cost of a higher education. In the end, automobiles are not priced on affordability and ability to pay; they do not have a bunch of somewhat hidden subsidies (electric cars have a subsidy, but those are with the purchaser and their personal taxes); they do not have different sectors or types, per se. The car price is relatively simple and static. Higher education is antithetical to that notion, or at least that comparison.

Determining the net cost (price) of college requires knowledge of a fair amount of information, including the exact college of choice and its institutional pricing and aid, plus the state and federal information, and finally the financial details from the individual and family, including how many dependent children there are.

The only true way to find a “number” as a proxy for net—let alone gross—price is to set a standard price. Free tuition does this, as long as it includes funding for living costs as well (in other countries these are often called “maintenance fees”). So that becomes a hurdle. But free college (nothing is every for free, right?) isn’t necessarily “fair” to all. It is subsidized by the taxpayer, and we call it a regressive subsidy when it goes to those who can afford the cost. If college was free (even two years), should those who could pay (e.g., those with incomes above $100,000 or $150,000, for argument) actually pay compared to those who truly do not have the funds to pay (e.g., Pell-eligible students)? Do we throw away means testing for affordability altogether?

Everyone might agree that having a window sticker for college would be handy. Most colleges now are required to have some net cost calculator on their website. But it is an “estimate” without official information from the FAFSA or from the institution, understanding that the numbers can and will change. If we want to be transparent and simplify, then we need to rethink how we fund and how we price higher education.

It’s not like we’re selling cars, here.

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