Before We’re Up to Our Necks in Aggregators, Let’s Get Out Our Net Value Calculators!

No sooner has the Net Price Calculator wave crashed ashore, the next wave of college-choice transparency in the form of third-party data aggregators is threatening to engulf us. A Net Value Calculator can help us recapture the high ground.

Since last October, Net Price Calculators (NPCs) have become a fact of life for American colleges and universities.

Some are doing the bare minimum to comply with the federal mandate by adopting the generic, federal NPC template. Others have developed more robust, custom-designed NPC’s that are more accurate in the information they present, better explain the school’s financial aid policies and even serve as marketing portals with links to messages about the school’s positive features and overall value, thereby framing “net price” in a larger context.

Back in 2010, we at Maguire Associates predicted that the online NPC was just the next step in an inevitable progression leading to the emergence of college pricing data aggregators.

A paper titled The Second Wave of Consumer Transparency in Higher Education by my colleagues Sarah Parrott and Jessica McWade predicted: “The new transparency is being fueled by the mandate for net price calculators. By October 2011, all colleges and universities must post net price calculators on their websites. Not long after that, the web aggregators (think Kayak.com) will find a way to grab the net price information for direct comparisons between colleges and universities. This information aggregation has already occurred in most high-end consumer markets, such as housing, travel and automobiles; it should be no surprise that the same will happen in higher education. Some institutions will fare surprisingly well because their net price calculators will be sophisticated enough to incorporate all institutional grant aid in addition to state and federal sources of aid, thereby lowering the net price that families will see online. Other institutions won’t fare as well because their net price calculators will be more generic and won’t account for all sources of financial aid that can offset the cost of attendance.”

Here come the aggregators

Well, the future is here, and comparison shopping for college tuition has begun.

First of all, the federal government itself is already providing net price comparisons of schools at its College Affordability and Transparency Center.

And where the government goes, commercial vendors can’t be far behind. For example, the website eduLaunchpad.com describes itself as “the first college search engine which allows students and parents to actually see and compare thousands of colleges’ net prices side by side, rather than having to individually search out each school. Unlike searching on individual schools or other college search engines, eduLaunchpad can include the net price calculation directly in the student or parent’s search results. This new information is going to become the standard search criteria for all college searches.” Like other aggregators, eduLaunchpad is supported by advertising from colleges themselves.

This development sounds like something we should all be applauding, right? After all, NPCs were meant to create transparency in what had long been a very murky, frustrating process for prospective college students and their families. With the NPC, these consumers can now make better informed decisions. As noted in a recent New York Times editorial: “The purpose of the calculator is to let families know long before they apply whether a particular college is within reach financially. Grants at a college with a high sticker price may actually make it less costly than a college with a lower sticker price and less generous financial aid.”

But now third-party aggregators using a limited number of criteria are busily reducing every college to comparable bottom-line figures. For those institutions that have gone to the trouble and expense of custom designing NPCs in order to more fully reflect their financial aid opportunities, it may seem that all of their carefully constructed detail might go for naught. Such would indeed be the case if a potential applicant were to forego a visit to the college’s website-linked NPC based on what he or she had already learned from a less informative, but more convenient, aggregator site. (See Endnote.)

Ironically, the evolution of the NPC toward third-party aggregation could end up subverting a major goal of the whole exercise—namely, encouraging applicants to consider schools that they might have erroneously thought were too costly.

Net price is only one factor of many

Such an outcome would be particularly troubling if its effect were to dissuade applicants from learning more about what particular schools offer for the money they charge. The fact is, college applicants and their families are not concerned only with net price when they make their college- choice decisions. For the past three years, Maguire Associates in partnership with Fastweb has conducted a College Decision Impact Survey (CDIS) of over 20,000 high school seniors annually, in an attempt to better understand the factors that drive prospective students’ decision-making regarding the colleges to which they apply and ultimately choose to attend.

Again and again, our survey findings confirm that cost of attendance, while important, is only one of an array of factors that influence college choice. High school seniors continue to place the greatest importance on “Value of Education” as well as:

  • Quality of major and students;
  • Career-oriented coursework/majors and future employment opportunities;
  • Total costs and the availability of merit- or need-based financial aid;
  • Academic facilities;
  • Campus atmosphere;
  • Personal attention; and
  • Preparation for graduate/professional school.

Students’ college priorities have remained stable despite any concerns about the economy. In fact, they appear to be willing, even in these difficult economic times, to pay more for higher education if it means they might obtain greater overall value for money. In response to the statement: “I am willing to assume debt, or deepen my financial commitment, for a higher quality education” a substantial majority scored 3 or higher on a scale of 1 Strongly Disagree to 5 Strongly Agree.

What we really need is not an NPC but an NVC

An important business concept is the notion of “net present value.” It allows you to decide among alternative investments that have different patterns of costs and revenues over time by calculating the net value today of their respective future streams of cash outflows and inflows.  In other words: What amount of money today, if invested at a particular rate of return, would be equivalent to that future stream of dollars?

In the world of higher education, the comparable question becomes: What would be the net present value of investing in College A vs. College B, when you take into account not only the net price of attendance over, say, four years, but also the stream of future earnings historically associated with graduating from each institution projected over one’s working lifetime (net of debt service and repayment costs, of course).

The Obama administration recently announced an initiative in the spirit (if not the technical sophistication) of net present value called the “College Scorecard.” Linked to the NCES College Navigator website, the Scorecard, as currently conceived, would supplement net cost of attendance (captured by the NPC) with indicators of relative value such as completion rates, student loan debt and repayment rates, and earnings potential. Colleges will be asked to issue a financial “shopping sheet,” containing these data. Below is a link to a screenshot of the site where comments on the Scorecard are being solicited.

In light of our CDIS findings, however, a scorecard would only scratch the surface of what constitutes net value in the minds of most higher education consumers. For them, an ideal Net Value Calculator would gauge the net present value of an education not merely in terms of cash outflows and inflows but of a whole range of factors that we know students “value” but cannot readily quantify—things like quality of teaching, compatibility with fellow students, campus climate, potential for post-graduation professional networking, institutional reputation in the job market, grounding in critical thinking and communication skills, and so on.

It would be virtually impossible for any third-party aggregator to adequately quantify these intangible benefits for a particular college, much less do so in any kind of meaningfully comparable way for all colleges. U.S. News & World Report has tried, but even it cautions users not to rely exclusively on the rankings when choosing a college. Despite the many items it measures, the rankings cannot elucidate all the factors that might bear on such a decision.

So what should college leaders do?

In a world where aggregators will be “scraping” NPC information from every college, what should leaders of any one college do to make sure that these third parties don’t preempt their best prospects?

1.     Test each major aggregator site by entering sets of applicant characteristics that represent desirable student profiles to determine what that site would say about your bottom line versus those of other schools. See if, in fact, an inaccurate or unfair impression is being conveyed that might cause a user to forego visiting your own website.

2.     Armed with this insight, reexamine your NPC to ensure that it presents your institution’s financial aid policies as you would wish them to be understood by various types of students with differing financial needs, demographic characteristics and qualifications. Good NPCs factor in both need- and merit-based financial aid before presenting the bottom-line net cost.

3.     When you do get a prospective student or parent’s attention on your NPC site, design their experience so that they are exposed to what amounts to your NVC as well. Provide them with carefully constructed messages, links and “sticky” content that will engage their interest and encourage them to stay on your site to learn the school’s full value proposition. (Parents, in particular, will likely spend more time with your NPC than they will with your viewbook, so use those few extra minutes to introduce your institution’s value as well as its net price.)

Recognize that, as much as you might hope to “drain the swamp” of the aggregators, that’s not going to happen. Better to count on their proliferation and work with them to promote ever greater transparency and detail. Take the initiative in providing them with all of the information prospective candidates should use in deciding on which college to attend

This last point bears some elaboration. In all probability, further evolution toward third-party aggregation will continue in the direction of increased competition among them, as they try to outdo each other in serving the needs of prospective students and their families. We’ve seen this happen before. Over time, the various travel aggregator sites, in order to stay competitive, have expanded their user options to include preferences for particular kinds of meals, direct flights, seat locations, etc. In the same way, we can expect that these new college one-stop shopping sites will also incorporate other criteria of value to their users.

But this will take time to develop. Initially, we are more likely to witness a stripping away of detail in order to get to a least common denominator bottom line. And this will surely be a cause of consternation to those schools that suffer unfairly in simplistic comparisons. Take solace from the fact that the richer and more robust your NPC, the more you are likely over time to see your school’s  full value reflected in governmental scorecards and shopping sheets and on third-party websites.

Transparency is here

Transparency in college-choice decision making is with us. For good or ill, the first wave of transparency came when U.S. News & World Report aggregated information on paper and began publishing its rankings. The second wave arrived with the net price calculator mandate. The third wave will be the emergence of an increasing number of aggregation sites that allow users to prescreen multiple colleges without ever needing to visit their individual sites.

This third wave carries with it both dangers and opportunities. Early on, the aggregators will be limited in the amount of information they report about each institution—to the possible detriment of those schools whose NPCs have been designed to tell a more complex, nuanced story. Nevertheless, colleges should take the lead in helping aggregators to become ever more helpful to their users by providing greater levels of explanatory detail.

In the end, we can all hope that, with the encouragement of college leaders and higher education trade associations, the competitive dynamics we’ve witnessed in other domains will operate in higher education as well, leading the aggregators to enhance their reporting to more fully and fairly reflect the distinctive value propositions of America’s colleges and universities.

Lawrence Butler is senior consultant at Maguire Associates Inc., a Concord, Mass.-based consulting firm.

 

Endnote

Not surprisingly, at least one commercial aggregator (eduLaunchpad referred to earlier) recognizes the opportunity to capitalize on the need that colleges have to stand out from aggregated net price data by offering to highlight and provide dedicated messaging for those colleges that are willing to pay a fee for a “premium listing.”  We are likely to see more of this Google-style form of advertising as the number of aggregators expands.

 

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