Idea to Reform Higher-Ed Pricing (and reduce future student debt)
The best first step government should consider when addressing any problem is increasing #transparency.
Transparency here simply means making more information available, accessible and in a useful format, so parties (students & parents, in this case) can make better decisions.
While not the right or complete answer for many cases, increasing transparency has several important benefits:
- compliance is likely to be simple and inexpensive;
- avoids onerous alternatives that often have serious negative unintended consequences, such as price caps;
- does not artificially limit competition or create winners & losers;
- easy to oversee, without an expensive bureaucratic army;
- empowers parties to make their own informed decisions;
- allows the free market to function … freely;
A great example of increased transparency is the required “minimum payment repayment estimate” disclosure on every credit card bill, so consumers know and easily understand the cost of only making the minimum payment.
The Problem With Higher-Ed Pricing
Clear personalized pricing is not available until after students/parents:
- invest time & money to apply to a school; and
- eventually learn whether they’ve been accepted.
Only then do they learn the price they will be charged (for year 1)
By the time an individual’s price is clear, competition has been severely limited to the list of schools the student has been accepted at.
Today, students and parents shopping for higher-ed don’t have accurate pricing that applies to them when they need it. Unless…
A Transparent Solution
This won’t perfectly solve every problem with higher-ed pricing or student debt, but it’s a terrific first step:
- Create an anonymous and secure website, with no tracking whatsoever (perhaps administered by a trusted non-profit, like Pro Publica), where families can enter (A) their financial information; and (B) the student’s grades, courses and test scores (and maybe their intended major).
- Based on #1, the student/family would be placed in one of 500 “buckets” that act as a shorthand, encapsulating their financial and academic circumstances.
- Every participating* higher-ed institution publishes a “good faith estimate” of their net price for each and every “bucket” as described in #2 above, so a student/family has a reasonably accurate sense of what a specific school would cost them, in year 1, BEFORE investing time and money to apply.
Perhaps at first, the “good faith” estimate would be required to be within 5%.
* The government should not require private higher-ed institutions to take these steps. HOWEVER, the government should require these steps of any higher-ed institution that wants to be eligible for any direct or indirect government financial support, including financial aid for its students.
The idea above might incentivize schools to have much lower prices in year 1, then much higher prices the following years, once a student is part of the community.
The first step to address this concern is, once again, through transparency: every participating school must disclose how much their prices change for students in years 2, 3, 4, 5, and so on.
How Will This Limit Future Student Debt?
If prospective students and parents have a clear idea of what a specific school will cost them, in their particular circumstances, before applying, they will make informed choices while there’s still a lot of competition.
Some won’t apply to schools they can’t afford, while others will still choose extremely expensive schools and to undertake tons of debt*. In either case, consumers are informed at an appropriately early point in the process and choosing what’s right for them.
* Reforms are needed in student loans too, but that’s for another time.
Similarities Between Higher-Ed and Healthcare
Another instance where prices are horribly disconnected from when consumers need them, in order to make good decisions, is healthcare.
Pricing for healthcare products & services is of course greatly complicated by both government and private insurance companies, as well as countless other intermediaries. Learn more in the terrific video below:
Two of the most significant expense categories in our lives — healthcare and higher-ed — have terrible price transparency, lots of government intervention, funding & tax incentives, artificially limited competition through regulation & accreditation, and wildly expensive prices that continue to increase much faster than inflation.
While increased transparency may not always be the right or entire answer, it should always be the first response government considers.
Thanks for reading! -M
P.S. Check out my new startup, Zagnetic.com