College costs – sticker price vs. net price

Although college “sticker prices” have soared over the last few years, net prices have experienced a more modest increase. 

… For the average full-time student, net tuition – which subtracts grants and tax-based aid – is less than half of the published price at private nonprofit four-year schools and less than a third of the published price at the typical public four-year institution.

Moreover, trends in sticker prices and net prices have diverged over the past several years, such that many students are actually paying less now to attend college than they would have five years ago.

This divergence is the result of a 40 percent increase in grant aid and a 78 percent increase in tax-based aid since 2005-6. The average full-time undergraduate now receives about $6,500 annually in grant aid and nearly $1,000 in tax-based aid to help defray tuition and fees (these figures, also from the College Board, are averaged across all students, including those who received no aid)…

Some students are bearing the brunt of high sticker prices

That’s all well and good, but for the one-third of students who are paying full price, the positive news about net prices is small comfort.  And for the two-thirds of the class of 2010 who graduated with an all-time average high of $25,250 in loans, the grants and tax benefits are not shielding them from reality of rising college costs.

Net Price Calculators can help

Many students and their families consider only published prices when comparing colleges, without taking financial aid into account.

It’s not surprising that the complexity of the financial aid formulas confuses many families, leading them to assume the worst when considering college costs.  While it’s still too early to know, we can hope that the recent introduction of Net Price Calculators on all college websites will enable families to get a more realistic estimate of their net college costs.

‘Tips for Using Net Price Calculators’

Here are some practical tips for using Net Price Calculators, a tool that is a useful first step in comparing affordability among the various options during the college search process.

Finding them on the college website (they won’t always be in the same place)

• Some calculators are easier to find than others. A few are posted on the college’s homepage, but most are in the Financial Aid section, which is sometimes under Admissions. Otherwise, try looking in Consumer Information or Disclosures, or search for the calculator within the site or by using an outside search engine like Google.
• It’s not always called a “net price calculator,” so also keep an eye out for the keywords “cost,” “estimator,” and “financial aid.”…
• Eventually, the Department of Education is planning to post all net price calculator URLs on its College Navigator tool (http://nces.ed.gov/collegenavigator/). We will update these tips when we find out more information about when the URLs will be posted.

Answering the questions

• Be prepared to encounter all kinds of calculators, from the simple (as few as 10 questions) to the complex (50 or more). Some calculators ask questions that require you to dig up detailed financial information from your (or your parents’) tax returns, earnings statements, and bank statements. If you don’t have that information handy, answer as best you can or try to skip the question.
• Colleges cannot require you to provide your contact information. If you aren’t comfortable giving them your name, email address, or other information, you don’t have to.

Interpreting the results

• The most important number on the page is the “net price” – the full cost of attendance minus grants and scholarships. Make sure you focus on that dollar figure when interpreting calculator results and comparing colleges. Some colleges also subtract their expectations of how much you’ll earn and borrow to get a smaller cost figure, but it won’t be called “net price. Remember that grants and scholarships don’t need to be repaid, while work expectations must be earned and loans repaid with interest. That’s why work-study and loans are called “self-help.” You don’t want to accidentally compare one school’s net price with another school’s figure that includes loans and work-study.
• 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.

Courtesy of the Institute for College Access & Success, which also produced a report titled “Adding It All Up: An Early Look at Net Price Calculators.”

Net Price Calculator – a helpful first step in the college search

Starting October 29, all colleges are required to provide a Net Price Calculator (NPC) showing the ‘net price’ (defined as tuition, fees and indirect expenses minus grant and scholarship aid) for individual students based on their personal status.   For more details you can go here.

I created three fictional student profiles and ran them through the calculations of a dozen colleges.  In all three cases the student was a top scholar with high test scores who resides in New York State.  The only difference between the three profiles was the family’s financial situation.  The earned income for the three different families were $50,000 (low), $80,000 (medium), and $150,000 (high).  Here are the net Cost of Attendance (COA) results.  [UPDATE:  Harvard figures have been updated to correct a mistake.]

Some initial observations:

• A low- to middle-income student enjoys a tremendous bargain at many top-ten schools, if he is admitted.  With acceptance rates in the single digits for some of these schools, that’s a big “IF”.
• At most schools ranked below top ten, a low-income student will pay at least $20,000 a year to attend.  (Note that all these were out-of-state schools for our fictional student.  I plan to run in-state examples later.)
• Quick comparisons can be made based on NPC results.  For example, with similar COA figures, it appears that UVA offers more need-based aid for low-income students than Denison does.  The detailed report generated as part of the NPC confirms this, indicating the next step might be a request for more detailed information from the college admissions staff.
• Merit scholarships may be the biggest unknown factor.  I would be careful about relying on NPC figures for this, even for schools that explicitly state that they include merit in their calculations.  Further research will usually be required.

Bottom line:  Families should run NPC reports for all schools on a student’s initial list as a useful first step in comparing affordability among the various options.
…

* CHART EXPLANATION:
….•  Rank:  USNWR ranking; NR = not ranked nationally
….•  COA:  Cost of Attendance
….•  Net COA:  Income Categories are Low = $50,000; Med = $80,000, High = $150,000
….•  Merit Aid:
……….1 – NPC does not consider merit aid.
……….2 – NPC considers at least some merit aid.
……….3 – Unclear if merit aid is considered.
……….4 – School does not offer merit aid.

** This NPC non-resident COA is at odds with the information on the college website.  According to the UNM website, it appears the NPC COA should be increased by approximately $13,000 a year.  Since it’s unknown how that change would affect the net price, I would consider all these UNM numbers to be unreliable.

Net Price Calculator for all colleges mandated by October 29

Starting October 29, all colleges will be required to offer a Net Price Calculator (NPF).

Under the requirements of the federal NPC mandate, colleges must post a calculator on their Web sites that computes ‘net price’ (defined as tuition, fees and indirect expenses minus grant and scholarship aid) for individual students based on their personal or family financial status.

The resulting “net price” is the amount a student would pay, from savings, family income, loans, student jobs or other sources,  to attend that school.  The NPC can be a quick way to see how much financial aid a particular college would offer a particular student.

What about merit aid?  It may not be included.

Institutions that grant merit aid, as opposed to need-based scholarships,  require more information from students – thus complicating the calculator – and will be unlikely to provide precise aid estimates. A merit aid determination might be based, at least in part, on the strength of an applicant’s G.P.A. or SAT score relative to the scores of fellow applicants − an unknown until deadlines pass and applications are in.

Some colleges will not be providing estimates of merit aid at all in their NPC numbers.  Others will give merit aid estimates with the warning that all scholarship sources are not included in the final calculation.

What about other factors in enrollment management?  It’s complicated.

… the design of this calculator and the issues that colleges will face in deciding what to reveal in their calculator are many and multifaceted. The awarding of financial aid has gotten very complex, and the tactics that institutions use to maximize net revenue may have overtaken the basic value structures of the institution — such as providing aid differentially by gender or providing meager aid to very poor students and aiding middle-income students more generously. …

Gender may be one variable that a college uses in calculating its financial aid awards — aiding men and women differently.

Next up:
Tomorrow I plan to post some NPC examples for various schools and student profiles.