• The Real Cost of College: Less Than You Think

    In a NY Times Economix post last November David Leonhardt interviewed Sandy Baum, an economist at the College Board and lead author of the its annual report on college tuition. Baum said several things about the amount of grant aid (as opposed to loans) available to offset the rapidly rising college sticker price.

    The majority of students receive some grant aid. According to Baum, two-thirds of full-time college students receive some grant aid and 80 percent attending private institutions do. All that aid reduces the effective price considerably.

    The average grant aid for full-time public two-year college students is more than enough to pay the $2,544 published tuition price. So the average net tuition price at these schools is actually zero. At public four-year colleges the average net price is about $1,600 (compared with a list price of $7,020). At private four-year colleges, it’s about $11,900, compared with a list tuition price of $26,273.

    These prices don’t include room and board or other costs.

    Grant aid has been rising faster than college tuition recently so the net price has been dropping for those receiving aid. Not all the grant money is distributed based on need. Some is distributed on merit. So even if you’re reasonably well off you may not pay full price.

    At public four-year colleges, about two-thirds of the institutional grants awarded are non-need-based. And of course, federal tax credits and deductions go primarily to middle- and even upper-income students and families.

    For more from the NY Times on college admissions and aid see their The Choice blog. Leonhardt suggested these three posts in particular.

    It is a shame that markets for the most important services (health, education) also have the most opaque pricing. At least when it comes to college, the price is likely to be lower than we fear. The same cannot be said for health care.

    • Austin – As I’m sure you know, there is a strange way in which health costs also come down in a rather opaque way. It’s through the use of negotiated rebates, discounts and “chargebacks”. The cash prices we see for many health care services – doctors visits, pharmaceuticals, ER visits, etc. – are only for those who do not have access to managed care. Nearly all managed care organizations limit your provider or drug options in exchange for negotiated rebates and discounts with providers and manufacturers. Drug manufacturers compete to provide rebates in order to be one of the few brands covered in a therapeutic class. Doctors similarly compete on negotiated rates to be in a plan’s network. These discounts and rebates go back into a plan’s funds, permitting it to offer lower premiums (assuming a competitive market). The problem is that cash customers, often those without coverage, pay the most. Additionally, due to the multitude of plans in the United States, the administrative hassle of figuring out everyone’s network and their drug formulary can take several billing specialists.