Everyone knows that college costs are out of control. It used to be that the most expensive colleges in this country cost $30,000 and then $40,000. And now dozens of colleges have blown past the $50,000 mark.
None of this is news, but here's what you don't know: It's not true.
No really. I'm serious.
Published college sticker prices have indeed been far outstripping the inflation rate for years. Parents and financial professionals, however, aren't clued into this critical fact: Millions of families aren't paying retail prices for college.
In reality, when you factor in the widespread tuition discounts that colleges routinely award students, the prices have plummeted.
Take a look at the published prices and the average net price that families actually paid forthe 2009-2010 academic year, according to the College Board:
You can trace most of the price drops to grants that colleges themselves dispense to students. Federal tax credits, such as the American Opportunity Tax Credit, contributes to a small portion of the price cuts.
The average tuition discount that private schools award, according to the latest annual survey of the National Association of College and University Business Officers, is 53.5 percent. So at a private college that charges $35,000 in tuition, the average price break would be $18,725.
But surely, you must be thinking, schools are reserving these fat discounts to middle- and low-income students who truly need a helping hand. Once again, however, this conventional wisdom is not true. The vast majority of schools in this country routinely shower scholarship money on affluent students too.
According to the NACUBO study, private colleges were recently awarding 41.5 percent of their scholarship money to affluent students. In contrast, these schools earmarked just 36 percent of their grant aid to students in financial need.
It's not just private colleges that are offering financial carrots to well-off families. State universities are awarding their wealthiest students with almost as much money as their poorest ones.
According to a new Education Trust study, public flagship universities in all 50 states were recently awarding an average grant of $4,158 to students in the top income quintile. In contrast, the bottom quintile of students at these flagship schools received an average grant of $4,910. That's just a $752 difference.
What is the motivation for this institutional behavior? Here's a major motivator: By attracting affluent students through aggressive discounting, colleges believe they have a better shot at improving their annual U.S. News & World Report college rankings.
Schools believe affluent students can help them earn higher rankings because these applicants often enjoy higher grade point averages, as well as standardized test scores, and are more likely to graduate from college in four years. What's more, universities hope that well-off students will eventually become generous donors as alumni. All these are factors that U.S. News uses in its rankings methodology.
If a college doesn't provide healthy discounts to wealthy families, its competitors will more than likely steal away their prospects with scholarships offers. Frankly, the only schools that don't have to offer any discounts to wealthy students are three or four dozen institutions that, deservedly or not, enjoy a lock on the highest college rankings such as the Ivy League schools and elite liberal arts colleges such as Amherst, Williams, Pomona and Swarthmore.
The good news for your clients, regardless of their income, is that a teenager doesn't have to be an “A” student to snag grants and scholarships from colleges. In fact, some colleges and universities give every student some sort of discount.
According to the latest federal statistics, 64 percent of full-time students, attending either state or private colleges, recently received grants. The average grant was $12,700. Among all private colleges, 82 percent of students receive grants.
I'll explain how you can find statistics that pinpoint the generosity of a college in future columns, but I'll briefly share a great resource that you and your clients can use now. A resource that I have found invaluable is the College Navigator which is powered by a massive federal database of higher-ed statistics. To find College Navigator, just Google the term.
When you type in the name of any school on College Navigator, you'll be directed to 11 categories of statistics including admissions, tuition and academic programs. Click on the financial aid category and you'll see the school's average institutional grant, as well as a pie chart that shows what percentage of students receive assistance.
As an example, I checked the financial aid statistics of the University of Notre Dame. According to College Navigator,76 percent of students at Notre Dame receive some type of aid and 52 percent obtained a grant from the school. The average institutional grant is $22,450.
Here's the bottom line: The price breaks that colleges are offering are considerable, which is why your clients should not initially cross any schools off their list because they look too pricey. For many families, the schools with the most outrageous price tags can be the cheapest because they typically offer the best financial aid packages.
Lynn O'Shaughnessy is a financial journalist, college consultant, speaker and the author of The College Solution, an Amazon bestseller.