We had introduced the details and concept behind our new undergraduate program price metric in a previous post after explaining why current ones were seriously deficient. The new metric, Net Cost, is broader and more accurate than metrics like Cost of Attendance and Net Price, and clarifies marketplace dynamics when applied to specific business cases and actual competitive dynamics.
To recap, Net Cost is a consumer-centric metric which shows costs as they are presented in commercial transactions outside of higher education. It represents a full-time student’s cost of attending college including: tuition, room & board, fees and estimates of supplies less institutional aid of all kinds (including need-based and merit), and less federal and state/local aid. Loans and other repayable amounts are excluded and do not reduce the cost. Room and board charges used are on-campus costs for residential colleges; for students attending non-residential institutions, the college's own estimate of such off-campus costs is mostly used. Total average net cost for all students averages a college’s in- and out-of-state costs in proportion to the student body’s residence. Net cost differs from the Net Price figure self-reported by colleges to the NCES because it is comprehensive and covers all students, including the over 40% not covered by Net Price calculations.
We thought it would be helpful to present the Average Net Cost index for US higher ed as a whole and then broken down for several components, including both charts and data. First, the broad US index, covering over 4,000 institutions from the period between 2007 and 2018.
One important thing to note is that “mix” has a big impact on this index, which is weighted by full-time equivalent student (FTE). Net Cost is a measure of student spend on undergrad. This index as a result both shows the impact of college price changes as well as changes to where students enroll - “mix”. The trend in the 2010s was for a gradual upscaling of student choices, from 2- to 4-year options, to more expensive 4-years, to more selective schools, meaning that the average individual college would not have managed to raise prices by the % shown above. Our estimate is that the actual straight unweighted % cost increases by colleges was 1.1% annually for 4-year schools and 0.3% for 2-years. These are the annual price increases taken by individual colleges on average during this period.
Disclaimer: mix calculations are complex and knowledgeable people arrive at different conclusions based on their approach. It is preferable to make broader assessment and say that “mix” accounts for about 1/3 of the Net Cost increases and 2/3 consisted of straight Net Cost increases.
The average annual increase in Average Net Cost for 2008-2018 was: 2.0%. Runaway inflation in higher ed has disappeared. For more on this rich topic, see our prior post on pricing trends, which also covers what is and what isn’t a driver.
The Average Net Cost index for 4-year programs is of course higher than the average for all schools:
And the 2-year college index is lower:
Both 4- and 2-year indices show an annual Net Cost increase of 1.7%. (The fact that both indices show inflation of 1.7% yet the broader index shows higher inflation of 2.0% seems counterintuitive, but is the result of Mix. Students shift their undergrad enrollment within the 2- and 4-year categories and between Associate and Bachelor’s programs.)
One final comment: the 2-year plunge in Net Cost in 2011 is connected to the increase in the Pell program. Net Cost is a measure of student spend, so additional Pell outlays will reduce it without reducing college revenues.
In the next installment, we will cover historical Net Cost increases for different undergrad segments.
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