When I look at today’s colleges prices, I am truly startled.
Back when my children were touring private colleges, the schools on my children’s lists were in the $40,000 range (my youngest graduated from college in 2014).
Today, the most elite schools have reached or surpassed $70,000 annually. I don’t need to tell you that household income hasn’t kept pace with these obscene price increases.
The vast majority of families, however, don’t pay sticker price for a bachelor’s degree. That reality could be comforting to your clients, but it won’t be helpful unless they understand what kind of deal a particular school is likely to offer them.
And the best tool to use when conducting that critical research is something called a “net price calculator.”
The aim of a net price calculator is to provide a family with the cost of a specific college after any eligible grants or merit scholarships are deducted from the institution’s cost of attendance.
When using a net price calculator, parents can discover that a $70,000 school may cost them only $30,000 or $20,000—or even lower. In other cases, the calculator will deliver the bad news that the $70,000 college will expect the family to pony up the full amount.
I’ve crossed paths with thousands of parents over the years and the vast majority of them have never heard of, much less used, a net price calculator. And that is just as true with affluent parents as it is with parents of more modest means. I give more college talks in Silicon Valley than anywhere else and when I ask the highly educated parents in the audience if they are aware of the tool, less than one percent raise their hand.
For advisors, combining this lack of knowledge with information to be gleaned from the tool and you’ve got yourself an excellent marketing opportunity.
Here are five things you need to know about net price calculators:
1. Good calculators will require a family to share the household’s financial information, including parent and child’s assets and income.
To use a net price calculator, parents will need information from their investment account statements and a copy of their federal tax return.
If a college offers merit scholarships, a good calculator will also ask for a child’s academic statistics such as grade point average and test scores.
Once parents have inputted their information, the calculator will determine if their child would be eligible for federal and/or state aid, as well as need-based aid or merit awards from the school itself.
Smart advisors will offer to run net price calculators for prospects. Since parents will need to bring their investment records and tax returns to use them, it can provide an advisor with an excellent idea if a prospect would make a good client.
2. Calculators can reveal information that you might not get from the institution. This makes them valuable in testing different academic and financial scenarios.
For instance, let’s say a teenager earned a 1320 on the SAT out of a possible 1600 score. That is a very good score, but should the child try for an even high score? A net price calculator could provide the answer.
All parents would need to do is run the calculator with a higher hypothetical SAT score to determine if it would boost the award package. Let’s suppose that a score of 1350 would increase a merit award from $18,000 a year to $24,000. In this case, it would certainly make retaking the test worthwhile.
3. When money is an issue, parents should use these calculators before they let their children apply anywhere.
If the projected net price of a school is too expensive, parents should tell their teenagers to keep looking or warn them that the college won’t work if they apply and the ultimate offer is inadequate.
What parents should avoid doing is give their children free reign to apply wherever they want without having a good idea of their eventual financial awards. That approach can lead to a lot of tears and parents who cave under pressure and ruin their own financial futures.
4. It’s important to be able to distinguish between good and bad calculators. Unfortunately, about half of the net price calculators in this country are lousy. These calculators rely on the free federal template.
The federally inspired net price calculator is seriously deficient for these main reasons:
- It asks as few as three questions.
- It doesn’t inquire about family’s assets.
- It doesn’t ask for a household’s specific income; instead only provides ranges that top out at $99,999.
- It can’t calculate merit awards, making it worthless for higher income households.
Luckily, prestigious and higher-ranked schools tend to offer helpful calculators that will provide good net price estimates. These calculators can take 10 to 15 minutes or longer to complete. In contrast, a federally inspired calculator can easily take less than one minute to use.
5. Colleges were not happy when the federal government began requiring them to offer calculators on their websites beginning in the fall of 2011.
I think this helps explain why it can be difficult to find the school’s calculator. The easiest way to locate one is to Google the name of the school and the words “net price calculator.”
Lynn O’Shaughnessy is a nationally recognized higher-ed speaker, journalist and author of The College Solution. She writes about college for CBS MoneyWatch and her own blog, TheCollegeSolution.com.