Burned by college net price calculator estimates

Price calculators were supposed to make estimating the cost of going to college easier. But some families are feeling burned by them….

Net price calculators (NPC) became a mandated tool on all college websites last fall, but the Wall Street Journal reports that some estimates have turned out to be inconsistent with the actual costs families learned about this spring.  There can be several reasons for the inaccuracies, including errors in entering data, changed personal circumstances, outdated college costs, and flawed calculator design.

Families should understand that the NPC estimates can be a useful first step in comparing affordability among various institutions, but should not be relied upon for total accuracy.  It’s important to review the final report carefully for questionable results, such as the example where an NPC produced an ”estimated out-of-pocket cost” of $0 while also including loans amounting to more than $20,000.  Contact the college when you discover questionable numbers like this.

Some tips on interpreting NPC resuls from The Institute for College Access & Success:

• Be wary of estimates that include unrealistic amounts of self-help. We have found calculators that subtract $20,000 or $30,000 worth of expected loans to get to what might be called a “final” or “out of pocket” cost figure of zero. This can make colleges look more affordable than they really are. It may look like you will have no out-of-pocket costs, but the costs are just delayed.
• The results are only estimates and colleges can calculate them differently, so use them to make ballpark comparisons between colleges. Don’t draw conclusions based on differences of several dollars or even several hundreds of dollars – talk to the schools’ financial aid offices to find out more.
• The estimates are only for your first year of college and apply to a particular academic year (e.g., 2011-12). If you expect to enter college at a later date, know that the college’s costs and financial aid policies may change.
• Not all grants and scholarships are available for all years of college. You can contact the college’s financial aid office (or try searching its website) to find out whether you can expect the same amount of grant assistance after your first year.
• As all net price calculators are required to tell you, the estimates are not final or binding financial aid awards. To get an actual aid offer, you have to apply to the school for admission and fill out the FAFSA (Free Application for Federal Student Aid, http://www.fafsa.ed.gov/) to qualify for federal financial aid, and you may have to fill other applications for aid from your state or college. Net price calculators can help you decide whether to take those next steps.

Outside scholarships may cancel out financial aid given by your college

Do not assume that an outside scholarship will reduce your out-of-pocket college expenses.  This cautionary note comes from SmartMoney‘s 10 Things Financial Aid Offices Won’t Say.

“Outside scholarships help us, not you.”

Sure, you’re proud of the five scholarships your high school senior won from community groups and a local church, but don’t be relieved just yet. Unless you weren’t counting on any financial aid at all, those scholarships might not make a dent in the total amount you’ll owe. Why? Federal guidelines mandate that outside scholarship money be considered a resource in meeting financial need. This means you can’t use the scholarship dollars toward your expected family contribution, and the college can reduce the amount of aid coming your way. “Many parents mistakenly think their cost will be diminished and then are disappointed to learn that it will actually be the grant from the school that is diminished, thus saving the college money and not the family,” says Parnell Hagerman, associate head at the Oldfields School in Glencoe, Md.

But applying for outside awards can help students if they re looking at a financial aid package that features more loans than grants. Ask your college if it can reduce the loans first, says Patty Hoban, aid director at Willamette University in Salem, Ore. In that case, a few scholarships could still save thousands of dollars in interest. Secondly, it can reduce work-study, which is need-based.

Always check with the individual school.  It can be confusing because colleges vary in exactly how they treat outside scholarships.

Most schools have favorable policies that first apply the outside scholarship to unmet need, and then reduce self-help (loans and work-study) before touching institutional grants.

Go to the FinAid article on Outside Scholarship Policies for more details.

CollegeConfidential discussions include parents sharing their stories about how financial aid packages were affected by outside scholarships:
…Merit aid cancels out need-based aid
…Outside awards and structure of aid package

Helpful FAFSA Q&A from Mark Kantrowitz

Mark Kantrowitz answered FAFSA questions from readers of the NY Times The Choice blog.

To help readers of The Choice fill out the Free Application for Federal Student Aid, or Fafsa — the form that so many families will begin tackling this month to initiate the process of receiving financial aid from the federal and state governments — Mark Kantrowitz, a financial aid expert and founder of the Web sites finaid.org and fastweb.com, is taking questions this week in our virtual Guidance Office. Mr. Kantrowitz is the author of “Secrets to Winning a Scholarship,” published last February.

I always learn something new from reading these types of articles.  Did you know that in completing the FAFSA, a parent’s two-year associate’s degree counts as having “completed” college?  However, this may be a trick question if a student is trying to qualify for some types of financial aid.  Here’s the explanation from Part 2.

Q.  I’m not sure how to answer the question on parent’s education level. I have an A.S. degree and took some classes at a four-year college but never got my baccalaureate degree. Have I “completed” college? – PSB

A.  The purpose of this question is to determine whether the student is the first in his/her family to attend college (i.e., the highest level completed by either parent is middle or high school). Some states and colleges provide special grants and scholarships to these “first-generation” college students. First-generation college students are at higher risk of dropping out.

Note that these questions should be answered based on the birth or adoptive parents, not step-parents, foster parents or legal guardians.

For the purpose of this question, receipt of an associate’s degree is normally considered to have completed “college or beyond.”

The question is badly worded because some programs for first-generation college students distinguish between “no college,” “some college, no degree,” receipt of an associate’s degree and receipt of a bachelor’s degree.

If you are unsure as to the proper answer, select the “Other/unknown” option.

Here are links to the complete series.

Part 1: Answers on the Fafsa, the Free Application for Federal Student Aid

Part 2: Answers on the Fafsa, the Free Application for Federal Student Aid

Part 3: Answers on the Fafsa, the Free Application for Federal Student Aid

Part 4: Answers on the Fafsa, the Free Application for Federal Student Aid

Part 5: Answers on the Fafsa, the Free Application for Federal Student Aid

Last of 6 Parts: Answers on the Fafsa, the Free Application for Federal Student Aid

Related articles

• File your FAFSA ASAP – financial aid is often first-come first-served (costofcollege.wordpress.com)

‘Thought freshman year was expensive? Wait till senior year.’

It’s usually prudent to assume that college costs will rise over the four (or five or six) years that your child attends college.  Grant-based financial aid is likely to remain stagnant or decline, while college costs are likely to rise.  This advice is from SmartMoney‘s 10 Things Financial Aid Offices Won’t Say .

“Thought freshman year was expensive? Wait till senior year.”

Your kid just got her award letter and scored a large four-year grant covering most of her tuition, with a small loan for the rest. So you’re set, right? Not necessarily. Two problems can get in the way. First, the amount of federally subsidized loans a student can borrow typically increases slightly each year; as a result, the college may expand the loans it offers in subsequent years and downsize grants. Second, many parents and students assume that four-year merit-based awards will keep pace with tuition hikes. That’s not always the case. “Not all schools can afford to be that generous,” warns Willamette’s Hoban.

Nationwide, the average private college price tag jumped 4.4% for 2009-10 from the previous year with the average total cost for resident students at private colleges now just over $39,000. Assuming a steady 4% annual price increase and, say, $15,000 in aid each year, the $24,000 difference you paid on your student’s freshman year could grow to $29,000 by senior year.

If your child receives merit-based aid, ask whether the college can adjust it for tuition inflation. And, make sure your child maintains a top GPA; otherwise, they could lose their merit scholarship.

Related article:
Your chances for merit aid are better at less selective schools

Purdue scholarship chart clearly spells out basics, but the devil is in the details

Basic information about Purdue University merit scholarships is clearly spelled out in an easy-to-read chart.  However, understanding important details below the surface calls for further scrutiny.

Here is Purdue’s chart.

Click to enlarge.

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I like charts.  They’re quicker and easier to use if I’m trying to pull out key information about how much college is going to cost.  Click the image on the right to see another chart showing all categories of financial aid at Purdue.

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Purdue is a state school ranked #62 on the USNews list of national universities.  It is particularly strong in engineering, included in the top ten of USNews Best Undergraduate Engineering Programs Rankings.  Other well-regarded areas include business, education, and health sciences.  Cost of attendance is $23,468 for Indiana residents and $42,480 for non-residents. (The maximum Trustee scholarship of $16,000 would put a significant dent in that non-resident tuition bill.)

Some details about Purdue scholarships

• Apparently merit funds vary considerably among departments, with the school of engineering reportedly having the largest budget.
• Applicants and students who switch majors may lose their scholarships, important to know since engineering is notorious for weeding out students.
• Purdue grading is tough, so maintaining the grades needed to renew a scholarship each year could be especially challenging.  Getting an A is hard for the Boilermakers with an average GPA that has hovered around 2.8 for over 30 years. Purdue doesn’t even seem to know that grade inflation exists in America. 

Considering the risks of losing merit financial aid, I would think long and hard before encouraging an out-of-state student to accept a scholarship to attend Purdue as an engineering major.  The stress of keeping up good grades in that environment could be overwhelming.

Is it wrong to be your kid’s administrative assistant?

Many parents believe there are valid reasons for acting as your kid’s administrative assistant in the college application process.  Here is how one mother expressed it in a CollegeConfidential thread:

I feel a like a helicopter mom… but my kid is so busy with 4 AP classes, tons of EC’s, and writing application essays like crazy. I’d rather she focus on getting A’s and writing good essays; I’ll happily do the labels and envelopes and online ordering.

College admissions is a high-stakes game, so I agree with this.

I am a helicopter mom when it comes to the college admissions because of one simple reason – it costs alot of money. I’m not just going to let my child go with it….

Kids tend to take the world as they find it, so unless the parent seeks out and presents opportunities, the kid is likely to miss some good ones. That’s been my primary role in the college search: suggesting colleges, arranging trip logistics, researching FA information and filling out EFC calculators.

In some cases, kids going it alone have needed therapy!

… Our D handled the entire college application process all by herself without asking or accepting any help from me or my husband. I’d like to point out that she was accepted to every single college she applied to. She applied for scholarships by herself and was awarded a full academic scholarship at the college she is currently attending.

The entire process was EXTREMELY STRESSFUL for her and she began to suffer from anxiety and depression for the first time in her life. We ended up getting her counseling. She is doing much, much better now….

D was very adamant about handling the entire admissions process without any assistance. I offered to help out on numerous occasions, but she firmly declined my offers. Even though it was extremely stressful, I believe that she gained a great deal of self-confidence. Believe me, I hated to see her suffer from anxiety. Her therapist agrees that she is a much stronger person now that she realizes that she is capable of handling life’s challenges on her own….

What’s the deal?  Can’t the average kid handle the college application process on his own without ending up on the therapist’s couch?  Why are parents so involved?

• It’s very expensive.  Parents who want to be sure they’re getting the best deal feel they need to step in because their child is not savvy enough to handle that aspect of the college search.
• It’s very competitive.  Applications often need to be packaged in a way that will make them stand out in the increasingly sophisticated enrollment management  process.
• It makes a difference.  Adding or removing a college from the list, not missing an important deadline, and suggesting essay topics can be key in opening up opportunities that otherwise would have been missed if a parent had let their kid go it alone.

Our local school guidance counselor did a terrific job in overseeing the college application process a few years ago, but from what I’ve read this is very unusual.  Many high schools are understaffed or poorly informed, leaving students to fumble through the college choices, applications, recommendation letters and financial aid information on their own.  Lucky is the kid whose parent will step in to help.

Your chances for merit aid are better at less selective schools

Less selective schools offer more merit money but less need-based money.  But if you qualify for need-based aid, your chances are generally better at the more selective schools.  [UPDATE: Tables revised to show corrected admission rates]

If you do not qualify for need-based aid, your chances for merit aid are generally better at less selective schools.  In the first chart above, moving down one step from the most selective private colleges more than doubles the average merit aid amount.  The standard advice is to apply to colleges where your test scores and grades would put you well within the top 25% of the student body to improve your odds for receiving aid.  Your statistics are viewed as a way to boost the school’s prestige.

“Schools compete with each other to attract talented students… “If you want to recruit some of those kids, one way to do it is through merit aid.”

… “Universities compete based on prestige, so if they want to increase their rankings in U.S. News & World Report, an easy way to do that is to bribe high-scoring students to come to your university with non-need-based aid,”…

In addition to boosting prestige, colleges know that relatively small tuition discounts that attract higher-income talented students often yield them more net revenue than the more generous scholarships they offer to lower-income students.

“That’s a fairly significant percentage of what’s happening, especially for universities and colleges that operate on a tight margin and where tuition revenue is an important part of keeping the lights on,” said Jonathan Burdick, dean of financial aid and admissions at the University of Rochester. “In those circumstances, giving $5,000 against a $25,000 tuition charge is just like the discounting you’d see in a retail operation to bring traffic to the door.”

The Harvard Effect is a factor, causing some colleges to feel compelled to follow Harvard and Yale’s lead in price-discounting to affluent families.

Universities say they also have been forced to pay out more aid to people who don’t need it thanks to widely publicized changes in financial-aid policies introduced in recent years by highly selective universities including Harvard, Yale and Stanford, which raced one another to give grants to families with income as high as $200,000.

* Merit aid is defined as grants “awarded to students without financial need or awarded in excess of need”.

Source data is from College Board Trends in Student Aid 2011:

Psst – one of Duke’s so-called merit scholarships is actually need-based

Be wary of merit scholarships that take financial need into account.
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THE DUKE UNIVERSITY SCHOLARS award is listed as a merit scholarship, but it is actually based on financial need.

In one section of their website, it is described as completely merit-based.

Merit Scholarships
Duke University also offers a limited number of merit scholarships. All applicants for admission are automatically considered for any available merit scholarship; specific applications are not required, and are not available. Our merit scholarship programs do not require that the winner demonstrate need; merit scholarships are based on the student’s academic and personal profile.

But if you read further on the University Scholars website, you see a contradiction.

As University Scholars are selected in part on the basis of financial need, it is imperative to file any required financial aid forms as early as possible, preferably by mid-February.
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THE UNIVERSITY OF ROCHESTER MERIT SCHOLARSHIPS take financial need into account in a more subtle way.

From the University of Rochester website:

Merit-based scholarships … are awarded to students who demonstrate outstanding academic achievement and potential, regardless of financial circumstances.…

We distribute merit-based aid regardless of a family’s demonstrated financial need.

However, in candid blog post Jonathan Burdick, Rochester Dean of Admissions and Financial Aid, wrote about the curious correlation between lower income and increased merit award amount.

We had a “progressive tax” in our merit. On average, each four dollars less in family income increased merit awards one cent. Not much impact per student, but noticeable overall.

Hmm, the lower your income the more merit money you receive.  In defending the correlation, Burdick explains that financial need is incorporated in a camouflaged way.

… needier students were on average more likely to have earned larger merit awards from the committee review process. I expect this result reflects the sympathy most reviewers might have for students whose essays and letters of recommendation describe tougher life circumstances. You don’t have to see a tax return to admire someone who has both achieved in school and comes from a single-parent home, or will be the first in the family to attend college, etc.

This was exactly my thinking, that the reviewers sometimes give extra “points” to students from families with lower incomes, euphemistically described as tougher life circumstances. Parents must decipher this information on their own, since colleges may claim that financial circumstances are not a factor in deciding merit awards.

Be forewarned.  Sometimes even when colleges insist that a scholarship is awarded solely on merit, family income does matter.

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Related articles:

• Only two of the top ten universities give out merit scholarships
• Family income matters for ‘merit’ awards at the University of Rochester

Only two of the top ten universities give out merit scholarships

While all the top ten ranked universities offer generous need-based financial aid, only two – University of Chicago and Duke – award merit scholarships.

First, here are the top ten universities as ranked by US News & World Report.

#1         Harvard University
#1         Princeton University
#3         Yale University
#4         Columbia University
#5         California Institute of Technology
#5         Massachusetts Institute of Technology
#5         Stanford University
#5         University of Chicago
#5         University of Pennsylvania
#10       Duke University

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Chicago offers less aid to more students

Chicago awards merit aid to about 10% of its freshman, averaging about $8,000 per recipient.  Here is the description from their website:

Merit awards are determined by the Office of College Admissions regardless of financial need and are guaranteed for four years of undergraduate study. They include the following:

• University Scholarship: Partial scholarships ranging from $5,000 to $15,000, renewable for four years
• Chicago Public Schools Scholarship: A full-tuition scholarship to selected students who have graduated from a Chicago Public Schools high school
• Police and Fire Scholarship: A full-tuition scholarship to selected students who are sons or daughters of active-duty Chicago police officers or firefighters
• The University also honors National Merit Finalists with a renewable award of $1,000 to $2,000.

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Duke offers more aid to fewer students

Duke gives merit aid to about 3% of its freshman, averaging about $25,000 per recipient according to US News reporting.  This excludes their athletic scholarships.  More information is available at their website, but you have to wade through the details to learn that some of these “merit” scholarships actually have a need component.  (I’ll write about this messy detail in a future post.)

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Scholarship information for both schools from USNWR, based on 2010 data

University of Chicago Non-need-based Scholarships/Grants
Average non-need-based scholarship or grant award (freshmen)	$7,772
Average non-need-based athletic scholarship or grant award (freshmen)	$0
Average non-need-based scholarship or grant award (undergraduates)	$12,854
Average non-need-based athletic scholarship or grant award (undergraduates)	$0 …

Duke Non-need-based Scholarships/Grants
Average non-need-based scholarship or grant award (freshmen)	$24,985
Average non-need-based athletic scholarship or grant award (freshmen)	$39,470
Average non-need-based scholarship or grant award (undergraduates)	$21,158
Average non-need-based athletic scholarship or grant award (undergraduates)	$38,398

Parents have misconceptions about price of college

Parents need to dig deep to know the true “net price” of college for their children.

Key points from the AEI Nothing but net: helping families learn the real price of college report:

• Six in ten families rule out some colleges because of sticker price, yet many do not know that the “net price” is typically far lower. Stanford’s sticker price for tuition, living expenses, and books is $55,918, while Cal State Long Beach’s is $20,675. But for some low-income students, aid discounts those prices to $4,496 and $3,593 respectively.
• To help parents and students make informed choices, the federal government now requires “net price calculators” on college websites. That is a start, but proactively teaching parents—especially those with lower incomes—to think in terms of net price is critical.
• An AEI survey found that a majority of parents do recognize a distinction between sticker price and net price after aid when asked to think of the cost for a low-income student. Low-income parents tend to overestimate the net price for their child.
• Three corrective measures: (1) generate net prices for the  schools students list on financial aid forms; (2) enlist guidance counselors to marshal relevant data; and (3) encourage web developers to create online tools that help to compare net prices across institutions.

It would be better if families could easily know upfront what the college costs would be.

For many families, though, the net price of college remains hidden until far too late in the process. Colleges engage in what economists call “price discrimination”: they set a sticker price and then tailor aid packages to reduce the actual cost of attendance based on student characteristics like family background, academic qualifications, and other accomplishments. Price discrimination is an important recruiting tool for colleges and universities, who use aid packages to attract the desired mix of students.

Related articles

• College costs – sticker price vs. net price (costofcollege.wordpress.com)
• The big news is that Seton Hall’s new tuition discounts offer ‘clarity and certainty up front’