Three Tools to Cut the Cost of College

Three Tools to Cut the Cost of College

There are few other major financial decisions clients will make from such a clueless position.

A few years ago, it seemed unfathomable when a few elite schools began charging $50,000 a year. Now the most expensive schools are charging nearly $70,000 for two semesters!

I don’t need to tell you that runaway college prices are freaking out your clients.

There are, however, simple tools that you can share with parents to help them make smarter financial decisions about college and reduce their costs. You can start with these three:

1. Graduation Rate Tool

A mom once told me that she had lectured her son who was heading to San Jose State as a freshman about the need to buckle down and graduate in four years. I told the mother that regardless of what kind of student her child was, it was highly unlikely that he would graduate in the traditional four years.

San Jose State’s four-year graduation rate is an abysmal 7.7 percent. The lack of adequate state financial support and the inability to enroll in all the necessary classes in a timely manner are big reasons why this school—and many others in the state—have terrible four-year graduation track records.

And that’s hardly unique to California: Nationally, the four-year grad rate at state colleges and universities is 33.3 percent; for private institutions, it is 52.8 percent.

Perhaps not surprisingly, the schools that boast the greatest four-year graduation rates are elite universities that offer the resources students need to graduate on time. Most of the students at these schools also don’t have to worry about dropping out of school or reducing their course load because of a lack of money or a need to get a part-time job.

But in fact there are schools with similar student makeups that can have significantly different four-year graduation outcomes. The savings of graduating in four years can be considerable if families focus on a school where that is more likely to happen.

An excellent place to check graduation rates is College Completion, which is a microsite of The Chronicle of Higher Education. On this website you can check the four- and six-year graduation rates of any college or university. You can also look at the graduation rates of individual schools by race, ethnicity and gender. To generate college ideas, the site also allows you to sort schools by graduation rate nationally and by state.

Unrealistic Expectations

2. Expected Family Contribution Calculator

Parents often harbor unrealistic ideas about whether they will be eligible for financial aid. Some parents never complete financial aid applications because they mistakenly assume that they won’t qualify. Other parents, however, believe they will be eligible for need-based aid when their chances are nil.

Many parents I’ve talked to assume that there must be an income cut-off that, once reached, disqualifies families from receiving need-based aid. Unfortunately, there are too many other factors that impact aid eligibility. Your clients, however, can obtain a good idea of whether aid is a possibility—and what type of schools they should be aiming for—by using the Expected Family Contribution (EFC) calculator on the College Board’s website.

A family’s EFC represents what the aid formula says a family should be able to pay, at a minimum, for one year of college. The EFC for a family with an average household income of $55,000 would be in the $2,000-$4,000 range. If the college costs $50,000 and the EFC is $4,000, the student would be eligible for up to $46,000 in need-based aid.

In contrast, let’s say a wealthy family’s EFC is $55,000 and they are ineligible for need-based aid. If cost is an issue, this family should be looking for schools that would give their child a healthy merit scholarship.

To access the College Board’s EFC calculator, type EFC calculator into the search box on the College Board’s home page. To use the calculator, your clients will need to have their latest income tax return and their nonretirement investment accounts.

3. Net Price Calculators

Most teenagers apply to colleges blindly. Every year high school seniors send off applications without any idea if the schools on their lists will provide merit- or need-based aid. Often they don’t receive their award letters until just a few weeks before they must put down a deposit to secure their spot in the fall.

If a student does a poor job of picking schools, it is too late for a do-over. And this can lead to parents and their teenagers making financially disastrous decisions. It happens far too often. In fact, I can’t think of any other major purchase where consumers are in such a clueless position.

Your clients can obtain a good idea of whether a school will be generous or not by using the institution’s net price calculator. The federal government requires schools to post this special calculator on their websites.

The purpose of the calculator is to provide families with a personalized estimate of what a particular school will cost after scholarships and grants from the federal and state governments, as well as the institutions themselves, are subtracted. When using the tool, some parents will discover that a $60,000 school really will cost $60,000 while for others the price could be $40,000 or $30,000—or even much lower.

To use a calculator, parents will have to provide some of the same financial information that the EFC calculator requires. The calculator may also ask about the child’s academic profile including grade point average and standardized test scores.

Your clients need to keep in mind, however, that half of net price calculators are mediocre. These calculators use the federal template that asks few questions and are incapable of determining if a child will qualify for merit scholarships. If a calculator asks minimal questions and it only takes two or three minutes to complete, it’s likely that it’s a poor one, and parents would be wise to keep digging to get the most information they can about a particular school’s true cost.

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