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Why are college costs so hard to figure out?

By Phillip B. Levine
updated 12:21 PM EST, Thu November 20, 2014
STORY HIGHLIGHTS
  • Colleges don't tell you how much students have to pay until they are accepted
  • Phillip Levine: The lack of transparency in the college pricing system is a problem
  • He says "net price calculators" are hard to use and may not have much impact
  • Levine: A simplified calculator can help students determine college choices better

Editor's note: Phillip B. Levine is Katharine Coman and A. Barton Hepburn Professor in the Department of Economics at Wellesley College. He helped develop My inTuition, a simplified calculator for college costs. CNN Films presents "Ivory Tower," which looks at the problem of college affordability. The opinions expressed in this commentary are solely those of the author.

(CNN) -- Suppose you are car shopping and all cars have sticker prices of $60,000.

Most people are eligible for a discount, perhaps even a huge one, but the actual price isn't available until you're ready to open the wallet. You do all the research, test drive different models, pick the color, and then ask what it will really cost. Car shopping is discouraging enough the way it is, but imagine what a nightmare it is to have such a system.

Unfortunately, for students across America, that is how they choose colleges.

You spend years studying hard, taking SATs, visiting campuses, and then applying to schools. Private colleges have sticker prices upwards of $60,000 and rising, but they say not to worry because they also offer financial aid. What they don't tell you is how much financial aid you'll get until after you are accepted.

Phillip B. Levine
Phillip B. Levine

This system makes a college education the only product you will buy in your entire life where you have no idea what it will cost until the moment you have to buy it. The lack of transparency in the college pricing system, particularly at private colleges and universities, is a big problem.

Is college worth the cost?

In recent years, the federal government has gotten involved, requiring colleges and universities to maintain "net price calculators" on their websites. These calculators provide an estimate of the price after factoring in financial aid, much like a mortgage calculator would do on a bank's website.

Skyrocketing tuition
Ivory Tower: Student Debt Crisis
Is college worth the cost?

In theory, this is exactly what is needed. The problem is that these calculators are too difficult to use to have much impact. For one thing, they ask many technical financial questions.

Does anyone really know the value of their "total income adjustments" from last year's tax form? Figuring out some of the answers is like doing your taxes twice, once for income and once for assets. They are so complicated that most users give up before they finish.

Colleges and universities can do better. The financial aid process that ultimately determines what you pay is complicated because a small fraction of households have complicated finances. Determining what they can afford requires obtaining a certain amount of information.

But that doesn't mean schools can't provide preliminary estimates to prospective students. Most people's finances are straightforward -- a job, perhaps a house, and maybe some savings. Why not use that information to predict what college will ultimately cost?

This is what Wellesley College did when it introduced My inTuition, which is a vastly simplified net price calculator. The tool provides students with estimates of cost, after factoring in financial aid based on answers to six basic financial questions (total family income, home value and mortgage balance, cash holdings, and retirement and non-retirement investments). Most users who started the calculator completed it, and answers pop up in about three minutes.

College and university officials shy away from an approach like this because the estimates are imperfect. What will happen when a student gets a preliminary estimate of $20,000, but once full details are provided it turns out that she needs to pay more than that?

Here's the thing: The preliminary estimate need not be exact. When a student is months or a few years away from attending college, she may not need to know whether a college will cost $20,000 or $25,000, but wouldn't it be good to know that it won't be even close to $60,000?

How is this information helpful? Primarily, it can open doors that once appeared closed. College really may be in reach. Maybe private colleges are also an option along with state schools. The more options the better, but the key is to figure out what is affordable in the first place.

With the high and rising price tags of colleges, it's no wonder that students and their families are so scared. Financial aid is an important solution, but not if no one can figure it out.

If students can manage the actual cost of a college education, doesn't it make sense to let them know in the easiest way possible?

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