Why isn't there a Consumer Reports, Zillow, or Kelley Blue Book for America's colleges?
The market for higher education is broken. Despite massive increases in tuition, students continue to flock to colleges and universities where the likelihood of earning a degree, let alone finding success in the labor market, is distressingly low. As a result, levels of student debt and loan default rates are at all-time highs, leading some to declare that "sub-prime" has "gone to college" and that this bubble too shall burst.
The market is broken because it's rigged in favor of institutions of higher education and against the interests of consumers. Prospective college students lack basic information about college costs and quality--and how they vary across institutions--on which to base their investment decisions. This lack of information handicaps the ability of students to be the savvy consumers that a well-functioning market requires, freeing poor-performing institutions to operate at will.
Compared to other large investments that Americans make, the information that prospective students have about college costs and quality is woefully incomplete. Consumers in the market for a new car, a new house, or even a new washing machine can look to Consumer Reports, Zillow, the Kelley Blue Book, and other outlets for reams of comparable information about current prices, maintenance costs, and resale values. Sure, prospective college students have the popular U.S. News and World Report rankings, but these are largely based on institutional reputation, selectivity, and other measures that fail to capture return on investment. What if consumers want to figure out what their credential might be worth on the labor market after they graduate? Whether they'll have enough income to live comfortably and still pay back their loans? Whether students actually learn anything over the course of their program? On important questions like these, prospective students are in the dark.
Without better information, fewer people will apply to school and more students will drop out
Prospective students even have a tough time finding out how much a degree will actually cost them. Colleges engage in what's called "price discrimination:" they set a "sticker price" for their tuition and then tailor financial aid packages based on student characteristics to reduce the price that students actually pay. Until students fill out the Free Application for Federal Student Aid (FAFSA), apply to the college, get accepted, and receive a formal offer of financial aid, the "sticker price" is typically all they have to go on. Evidence suggests that high sticker prices can discourage qualified students and lead them to narrow their options. A 2010 survey by the College Board found that 59 percent of prospective students reported ruling out colleges on the basis of their sticker price. Even more troubling, misperception of college costs is most acute among first-generation college-goers and those from low-income backgrounds, many of whom see high sticker prices and assume that college is beyond their means. To top it all off, colleges can change the quoted price after that first year of attendance, leaving families on already-tight budgets out of luck.