An insight about the issue of college costs

In 1997 I served on the National Commission on College Costs. It is an issue that has generated a lot of political discussion and not a lot of solutions. Part of the problem is the confusion (either actual or intentional) that politicians seem to have between price and cost. Price is what families see when they apply to college - which is often discounted for various purposes including financial need. Cost is the amount that all of the resource inputs added together comes to. In higher education cost and price are always different AND no student in the country ever pays the cost of education. Thus, as economist Gordon Winston (from Williams) pointed out about a decade ago - colleges do not set their prices based on cost (a business person sets the price based on cost plus an expected profit) rather they set their price add a subsidy (including a need based component and a non-need based component) and the sum of price and subsidy equals cost. That is a result of the way higher education has formed itself but it makes solutions to this problem a bit more complex.

Yesterday, I was at a Lumina Foundation invited conference on College Costs. Pat Callan, who has had a long career in a number of positions on higher education policy pointed out that the issue is really not subject to technical solutions but rather the issue is a political problem. The problem with political solutions is there is an inevitable move toward standardization - political solutions look to one best way to solve an issue. But as a recent survey in the Economist pointed out the strength of the American system of higher education - which according to them has 17 of the top 20 research universities in the world - is that it is not a system - it has a diverse set of alternatives to serve a variety of student needs.

John Engler, the former governor of Michigan, suggested that one beginning solution would be a disclosure system similar to Sarbanes Oxley which would provide a greater level of clarity for consumers of higher education. That is a pretty good idea. The National Association of College and University Business Officers (NACUBO) spent a couple of years after the National Commission's report constructing a method to assess the cost (not price) of an undergraduate education. More universities should use the methodology. It won't solve the problem - but in this era of accountability it might lessen the chatter about costs. Colleges and universities need to think more proactively about how their costs work - in the current equation (described above) there is not a chance to make those kinds of evaluations in a consistent manner. Many college and universities boards and administrations have done some good work on figuring out how to hold down costs but more needs to be done. Disclosures in a consistent manner may be the first step.