The Price Was Never Real

I came across an article this week that took me straight back to a previous life.

Preston Cooper, a Senior Fellow at the American Enterprise Institute, wrote about price transparency in higher education and why giving families a guaranteed price before they ever apply might be the only real path to rebuilding public trust. It’s a good piece. But what it really did was remind me of a problem I spent years trying to solve in a completely different industry.

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In the Summer 2019 batch of Y Combinator, I was trying to solve price transparency in healthcare. The problem was simple to describe and nearly impossible to fix: patients had no idea what anything cost before they received care.

You’d walk in, get treatment, and weeks later receive a bill outlining the cost of the procedure or care, without any idea of what the cost would be beforehand. The healthcare system runs on something called a chargemaster, a published list of official prices that essentially nobody pays. It’s inflated high enough that whatever you end up paying feels like a discount by comparison. It wasn’t a system glitch. It was the system!

As a result, medical debt is now the single largest source of debt collection in the country. 100 million Americans carry some form of it.

I spent years trying to fix that from inside the system. The incentives were too entrenched. I couldn’t solve the problem.

Then I moved into higher education and saw the same exact thing.

Higher education has its own chargemaster. It’s called the sticker price.

Institutions publish it at high prices, then discount it selectively through aid packages that typically arrive after a student has already emotionally committed to attending. The real price comes later. The average tuition discount rate at private nonprofits has crossed 50% and oftentimes exceeds that! More than half of what’s published was never real to begin with.

Here’s what’s crazy about both systems. Your FAFSA is an open book to colleges. Colleges know your income, your assets, and your family size. But what does a family know about the institution in return? Not very much. The information flows almost entirely in one direction.

The institution keeps control. The family takes the risk. In both systems.

Here’s where healthcare and higher education split, though.

In healthcare, there’s no path forward without the federal government forcing it. The incentives run too deep through too many players. That fight is longer than any founder can win, and I learned that the hard way…unfortunately.

Higher education is a different story. The solutions don’t require waiting on Washington.

The fix is straightforward: show families the real number before they apply. Guaranteed net price offers tied to FAFSA data would let families compare schools the same way they compare flights. The technology exists. The will is what’s missing. Cooper makes this case better than I can in his AEI piece: https://www.aei.org/education/colleges-can-rebuild-public-trust-with-price-transparency/

But price is only half of it. Nobody walks into a business investment without asking what the return looks like. We’ve somehow decided that the biggest financial decision most families ever make doesn’t deserve the same level of scrutiny.

754 schools have already pledged to improve their aid offer letters. Yale just committed to free tuition for families earning under $200,000 before a student ever applies. None of it required an act of Congress.

When I was at YC, I couldn’t fix healthcare pricing. Too many stakeholders are profiting from the confusion.

But higher education doesn’t have to wait for the same reckoning. The institutions have names, faces, and leaders who genuinely care about students. The tools exist. Some schools are already using them.

Families aren’t asking for a perfect system. They’re asking for a real number before they make the biggest financial decision of their lives.

That’s not a hard ask. It’s just an honest one.