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College Search Error #3: Careless Consuming

Posted on 09/15/2023, by Dr. Ellen Fithian to Parents of 7th and 8th Graders, Parents of 9th Graders, Parents of 10th Graders, Parents of 11th Graders, Parents of 12th Graders (0 comments)

Imagine you were shopping for a new car. Would you go to a dealership and start looking at the cars on the lot with no consideration of the price? Conversely, would you refuse to consider all cars with sticker prices above what you were willing to pay - even if the dealer swore he could offer you steep discounts on some of them? Unfortunately, families shopping for colleges often make both of these errors. Some compose their college list with no regard for the cost. They reason that they will not know what each college will actually cost their family until they receive their financial aid award letters, so they'll wait until then to factor price into their college selection. The problem with this strategy is that if most or all colleges on their list turn out to be financially unrealistic, it will be too late to go back and apply to others.

At the other end of the spectrum are families who limit themselves to in-state public universities whose sticker prices are within their budget. This might seem like a prudent approach, but it overlooks the fact that many colleges with high sticker prices offer exceptional financial aid that can make them as affordable as (or more affordable than) schools with lower sticker prices. So how do you avoid these two pitfalls?

College Shopping: Price Check - Please! 

College is a big ticket item. Indeed, the cost of a college should be one of the most important factors considered by a family. In evaluating the cost of any school, start with its Cost of Attendance (COA) - the sum of: tuition and fees for a year, room and board, books and supplies, and an estimate of personal expenses and transportation. In short, COA is intended to estimate a family's total costs associated with one year of college. COA is a great place to start, but many families don't end up paying the full sticker price for the college their child attends. To get a realistic estimate of what your family will be asked to pay at a particular college, you need to take the next step.

After Sticker Shock, What Next?

The COA, or sticker price, for most colleges is scary. Here in Virginia we're fortunate to have excellent public universities that are considered good values for in-state residents, but even so, the 2023-24 COA for our flagship, UVA, is $37,828. By contrast, the COA for Harvard is $82,950 - $87,450. Does this mean you should cross Harvard off your list unless you're wealthy - or win the lottery? Not at all! Harvard has an extraordinarily generous financial aid policy that allows it to boast that "Harvard is more affordable than public universities for 90 percent of Americans." Here are some of the details: if your family income is $85,000 or less, parents pay nothing and students are expected to contribute only a small amount of money earned through a part-time campus job during the school year. Further, your financial aid package will contain no loans. Generous financial aid policies like the one at Harvard and many other elite colleges with large endowments mean that you can't determine which college will cost your family the most or least based on sticker prices alone. The price of college for any particular family depends upon how much the COA is offset by financial aid. The amount you actually pay is called your net price.

Your net price is defined as the college's Cost Of Attendance minus any grant money you're awarded. (Grant money is financial aid money you don't have to pay back.) Your family's net price at a college is determined by your financial resources; the less you have, the more financial aid you qualify for, and the lower your net price will be. You won't know your exact net price at a college until after you've applied for aid and your child has been accepted, but you can get a ballpark estimate of your net price at any college right now.

Thanks to the federal government, every college that participates in the federal student aid program must provide an online calculator that allows families to generate an estimated net price at the college. How do these work?

The calculator asks you to answer 20 to 30 questions about your income and assets, and uses that information to calculate an estimate of what your net price would be at the school. So after using the net price calculator for Luxury Lawns University - sticker price $72,000 - you might find that you would likely pay a more modest $45,000. The information you supply to net price calculators doesn't have to be exact. However, the more accurate your answers to the questions, the more accurate your estimate will be. Even if you answer questions precisely, you shouldn't expect the estimate to perfectly predict your eventual costs, but it should provide a reasonable approximation. You can find the net price calculator for a college by googling, "College X Net price calculator." Finally, be aware that using a net price calculator does not constitute applying for financial aid. That's an entirely separate process that begins with completing FAFSA in the fall of your child's senior year.

Using Net Price Calculators to Compose the College List

Generate a net price estimate for every college on your list as a first step to savvy shopping. What then? Should you cross off all schools whose net price is more than you're willing to pay? Not so fast. Your teen may be offered merit-based grant money that brings down the price tag. Even if he isn't, you may decide it's worth paying top dollar for a school that offers a genuinely unique academic or career opportunity. Just don't rack up large student debt for no good reason. 

Consider this scenario. Your daughter is looking for a scenic, rural college with a strong program in environmental studies. She finds ten schools that fit all of her criteria but only intends to apply to five.  How should she choose which five?  She could pick randomly, or select the ones that offer the most student-pleasing perks -the cafeteria sushi bar or the rock climbing wall. Or - you could use each college's net price calculator, learn that your net price estimate for a couple of the schools is $10,000 less per year than the others and make the choice that way. 

Net price calculators have revolutionized college shopping. Check them out today.

Posted on 09/15/2023, by Dr. Ellen Fithian (0 comments)