In some ways, purchasing a college education is like buying an airline ticket. Everyone on the plane arrives at the same destination, yet everyone pays a different price. One student may pay $10,000 per year and another $60,000 for identical classes at the same school. Price discounts can come in the form of merit scholarships, financial aid awards, and tuition discounts.
Every U.S. college must now publish a net-price calculator on its website so that families may calculate an estimated cost of attending one year. Some colleges include merit scholarship estimates on their calculators, but most calculators are geared to estimate financial need – and that’s where the trouble begins.
What are the troubles of the net price calculators? There is only one – inaccuracy. You can’t use them to make an “apples to apples” comparison of the only cost that matters to you: your out-of-pocket (or net) cost. The inaccuracies arise from two sources.
Schools Make Different Assumptions when Calculating Cost of Attendance
First, colleges have discretion in calculating cost of attendance or COA. The COA may include tuition and fees, books and supplies, room and board, transportation and a reasonable allowance sufficient for the prudent student to live (if your student is not prudent in high school, do not expect a sudden lifestyle change in college). Some colleges err on the low side, e.g. not all publish transportation or a personal allowance. Others use a mid-tier meal plan for the estimate. Colorado College publishes “Meal Plan C” which is great… if your child never wants to eat dinner, or at all on the weekends.
The Net-Price calculation is based upon the published Cost of Attendance. If the COA is low, the Net Price calculation will be low.
Your Student is Not Average
Second, every family is different and each college will craft an award individually for the incoming freshman after admission. The net price calculator output is based on averages and most families will vary from the mean. Because colleges craft individual awards, it is not possible to rely on the College Net Price Calculator to accurately estimate costs for your student or even to compare the costs of school A to school B for your student.
Complexity
The Net-Price is based upon either the Federal Methodology (FM), or the Institutional Methodology (IM), whichever the college chooses. These financial aid rules are complex and the colleges and the federal government do not provide an easy-to-use guide. Parents make mistakes completing the forms because they don’t know the rules. Most often the mistakes favor the college.
The calculator will not tell you if you are close to a significant award. Your income can be off by $1 and you can miss an award entirely. Close only counts in horseshoes. Ultimately, the college will determine the award following the federal and institutional guidelines, but subject to their own interpretation. When it comes to giving away their own money – the colleges may do as they please.
Getting the Best Education for the Right Price
The Net Price calculators are not all bad, even in their inaccuracy. The calculators telegraph the message that price is subjective.
As parents, you play the most important role in your child’s readiness for college. You read to them when they are toddlers. You get them to turn off the video games and do their homework when they are in middle school. When they are in high school, you support and encourage them as they take their ACTs and begin to develop preferences for one career over another. You do this because you want them to be responsible citizens, but also because you want them to be happy. According to the National Institute on Aging, “Education trumps money and social prestige as a route to happiness.” You want them to on that airplane to happiness, but not at the expense of your own happiness. You’d much rather pay $10,000 a year than $60,000 for their seat.
Consulting a college funding advisor early in your child’s life can help you develop a strategy for saving for college. As your child grows, your advisor can recommend legal and ethical strategies to reduce college costs through business owner and gifting strategies. When your child is in high school, an educational consultant can help him or her choose which colleges to apply to. This is a complex decision involving the quality of the education, the likelihood that the student will be admitted, the reputation of the school, the majors offered, the quality of life on campus, class size, and many other factors including the net cost. Additionally the educational consultant can help your student represent themselves well in the application. Once the student has one or more acceptances, consult with your college funding advisor again. This expert can help you navigate the process for getting need-based awards and tuition discounts. He or she can help you make an apples-to-apples comparison of the various offers. Some of our clients have successfully petitioned their first choice college to match the award offered their student by another school.
Your student is on the airplane, heading to his or her chosen destination. Don’t pay any more than you must.
Jay Murray is a leading college-funding expert. As the founder of Solutions for Tuition and Solutions for Tuition Education, Jay helps parents, grandparents, and students avoid costly mistakes.
Jay speaks regularly to students, parents, grandparents, CPA’s, financial advisors, service organizations, business owners, employees and many others about the dramatic changes taking place in college funding today and how to implement effective strategies to save money, reduce stress, and properly integrate college funding into their lifestyles.
Jay’s passions include family, fly fishing and playing guitar. Jay may be reached at 720-529-0707 or jay@solutionsfortuition.com.