Counting What’s Really Important to College Students (Zachary Bleemer, Mukul Kumar, Aashish Mehta, Chris Muellerleile, and Christopher Newfield)

The Cost of Overestimating Cost

What harm is done when people overestimate university costs? Does this overestimation matter for any practical purposes, especially because it seems to affect both lower-income and higher-income families?

The most obvious effect is that people may be less likely to attend college themselves or may be more likely to recommend against attending college when they talk to their children or friends. Misinformation spreads easily—especially in the form of indicators like sticker prices that are easy to misinterpret—and perceived higher prices tend to dissuade people from almost all purchases or investments, including at-tending college. When people decide not to go to college because of inaccurate perceptions of the cost, they miss out on the personal benefits of higher education and all of us lose the benefits to society that accrue from more highly educated communities.

Overestimating college costs likely also impacts the kinds of universities that students apply to and attend, especially those from lower-income families. Despite the fact that many private universities are actually cheaper to attend than nearby public universities for lower-income students because of generous financial aid, the large gap between the sticker prices of selective private and public universities likely pushes many lower-income students to attend the latter, even if the student believes that the former would offer a higher-quality education. The same is likely true for students from families or communities where few people went to college because information about the value of college education is more difficult for them to obtain. At the national scale, these forces may tend to push lower-income students out of the country’s highest-quality universities.

Finally, overestimating college costs almost surely damages the reputation of universities as accessible institutions that promote socioeconomic mobility, especially for public universities as the skyrocketing sticker prices of private universities have generated misinformation about the cost of attending public institutions, voters seem to have cooled toward the public funding of universities, increasingly perceiving them as bastions for higher-income students. These sentiments ironically have led state legislatures to decrease their annual investment in public universities, which in turn has led universities to charge higher tuition.

Interestingly, the empirical evidence about the ramifications of the widespread overestimation of college costs in the United States is relatively thin. Unfortunately, despite (or perhaps because of) wide agreement that overestimates of college costs would actively dissuade some young people from attending college, very few studies have directly tested this theory. 

In 2013, economists Caroline Hoxby and Sarah Turner published a study about the second potential effect—that over-estimating college costs discourages lower-income students from attending higher-quality universities. They conducted a large-scale experiment among high-achieving, low-income high school students across the United States in 2011. Hoxby and Turner randomly divided a large group of such students into treatment and control groups and mailed the treatment group a packet of detailed information about the annual net cost of attending a variety of both nearby and nationwide universities. They presented this information as the average cost for families at three income levels—$20,000, $40,000, and $60,000—so that students could extrapolate their own expected costs if they were to attend each university. In a second experiment, the same information was mailed directly to students’ parents, this time including additional details about the graduation rates and average wages of graduates from each university. 

Hoxby and Turner’s key finding is that students in both of these treatment groups (the one in which students received information and the other in which parents received information) applied to more and better universities than those in the control group and were more likely to be admitted to better universities, which the researchers categorized based on average SAT scores and graduation rates. Not all of these students actually attended better universities as a result, although those whose parents received the information about net costs were somewhat more likely to do so. They also found that when application fees were waived, these effects were greatly magnified 

The study results suggest that lower-income students’ overestimation of university costs warps their decisions about which colleges to apply to and that the simple intervention of giving college students and their families information about the true cost of attending college can meaningfully improve their decisions. This was an exciting finding, and in 2016 the College Board tried to replicate it on a massive scale. It mailed detailed information, including average net college costs for lower-and middle-income households, to hundreds of thousands of lower-income students who took the SAT exam. Unfortunately, this time the mailers had no effect on which universities the students in the treatment group chose to attend. Maybe students didn’t read the information from the College Board or maybe they didn’t trust the information that it provided. ­Either way, it seems that cookie-cutter informational mailers aren’t a magic bullet; widespread misinformation about college costs will have to be combated using other tools. It would be better if prospective college students had access to easy-to-use, interactive, and personalized net cost information for all the universities they wanted to apply to. 

Excerpted from Metrics That Matter: Counting What’s Really Important to College Students by Zachary Bleemer, Mukul Kumar, Aashish Mehta, Chris Muellerleile, and Christopher Newfield. Copyright 2023. Published with permission of Johns Hopkins University Press.