This booklet is divided into five sections. The first discusses the differences between education costs and education expenditures and the alternative ways that education costs can be measured. The second section shows how economic analysis can be used to isolate and measure the factors that cause differences in education costs. Section three presents the economic framework that is used to construct the cost indices, discusses the cost indices that were developed, and analyzes the effect of their use on the distribution of state equalization aid. The last section summarizes some of the issues raised by the study and suggests some policy implications of the results. An appendix presents a brief review of previous research on cost-of-education indices. (Author/JD)