My oldest son was born in 1994. I was an assistant professor at Wellesley College at the time. Two years later, I received an offer to take a one-year leave of absence from Wellesley and work as a senior economist in the White House Council of Economic Advisers (CEA). I accepted the position, and my family moved to Washington, DC, in 1996.
 
       My portfolio at the CEA included labor market, education, and welfare policies. A big issue at that time was tax policy designed to help reduce the cost of higher education. One result was the introduction of tax-deferred college savings accounts, so-called 529 plans, which were included as part of the Small Business Job Protection Act of 1996. These plans work like individual retirement accounts (IRAs) for college.
       My son was two years old then, and we had another son early the next year. I understood the benefits of 529 plans very well, so I opened accounts for each of them and started funding them immediately.
       When my older son was fourteen years old, I wanted to know whether I needed to continue making those contributions. Had I already saved enough for college? As a professor, I make a good living, but not so much that paying for college would be easy. Knowing how much I needed to save required knowing how much college would cost. I wondered whether our family would be eligible for any financial aid and, if so, how much.
       That is when the problem started. For current students reading this book, yes, the internet existed in 2008. Google had all the answers even then.
       Well, it turns out not quite all of them. As hard as I looked, it became obvious that figuring out if my son would be eligible for financial aid was impossible. All school websites posted the “cost of attendance” (COA), a formal term that included all costs, including tuition, room and board, books, and other miscellaneous expenses. Federal law required that COA be reported. That number was often big —around $60,000 back then at many private colleges and universities.
       But each school’s admissions and financial aid web pages also made bold claims —“our school is affordable!” Their web sites would include a page, www.ourschool.edu /affordable. It would tell me that the school offered generous financial aid and that a large fraction of their students (50 percent? 80 percent?) of their students received that aid. Often there would be student testimonials indicating how it would have been impossible for them to have attended the school without the help of the financial aid available.
       Why are they telling me the school costs $60,000, but then telling me that a large fraction of their students do not pay that amount? What amount do they pay? Some would include statements like “The average student receiving financial aid pays $20,000” or some such figure.
       If my family were eligible for financial aid, would we pay the average amount? Would we be expected to pay more or less than that amount? I wanted to know about how much we would have to pay.
       It turned out that it was impossible to get a personalized answer to the question of how much any of these colleges would cost my family. It occurred to me that if I could not figure this out, as an economist who looks at numbers and data and dollar amounts for a living, then surely many other parents could not figure it out either.
       For students from lower-income backgrounds, this would pose a far more significant impediment in their college search process. With greater financial need, understanding college costs is a more pressing issue for them. They may also have less exposure to the system of higher education, making it even more difficult for them to figure out how much college costs. Why risk searching for schools and falling in love with one or more of them without some understanding of whether it is even remotely financially feasible to attend?
       New federal legislation went into effect in 2011—on account of the 2008 Higher Education Opportunity Act —mandating the use of “net price calculators” at every institution that receives federal funding for financial aid. These calculators are school-specific. They are supposed to help students understand what their cost of college would likely be after factoring in financial aid (the “net price”). The reported results are detailed estimates, not a contract fixing the price that the student really will pay. The final net price still requires filling out and submitting financial aid forms and a lengthy review process to determine an exact net price.
       In practice, though, the calculators typically are not user friendly. They often use tax jargon and require inputs from tax forms. The fear and confusion that those tax forms generate is often enough to scare away potential users. They are also sometimes designed to garner prospective students’ contact information to be used in a school’s recruiting process as well as to provide them with an estimate of their net price. Combining those goals can turn off users who may resist identifying themselves as they enter their own private financial data. The introduction of net price calculators made it possi­ble for a family to get an estimate of what a college would cost them, but it is still a difficult and anxiety-producing task.
       This is what brought me to write this book. I am an economist, and economists understand markets. Higher education is a market, with colleges and universities representing supply and students representing demand.
       But markets require prices to function well. Markets exist when there are those who want something and are willing to pay for it and others who are willing to provide it for a payment. How much of those things are produced and who gets them can be resolved by a well-functioning market with prices determining who gets what. If prices are opaque and not well understood by either side of the market, the market will not function well.
       Economists routinely point to the market for health care in the presence of insurance as an example of a market where prices are not well known to the consumers of health care (i.e., patients). Most people have no idea how much a regular medical visit costs, since insurance pays the bill. Those with insurance may think it is a low cost, even though it is really more expensive...
       The market for a college education in the United States has the opposite problem. The only price that students often know is the full COA (the “sticker price”), when for most students, it is really less expensive than that. Part of the problem is that the federal government requires institutions to post that high price, and it is often the easiest number to find. In 2020, it hit $75,000 or more at some elite private institutions and $30,000 or more at public institutions for state residents. Most people cannot afford even the lower amount. At such a high perceived cost to the individual, people may be tempted to go to college “too little.”
       Yet most students do not pay the sticker price. The amount they pay is reduced, possibly substantially, by financial aid. What matters is the price they pay after incorporating that aid. If they do not know the amount of aid, they do not know the price. People treat health care costs as if they are less than they are and college costs as if they are more than they are. Both distort market outcomes.