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The Real Costs of College

A net price calculator allows clients to look beyond sticker prices to focus on the only price that matters to a mom and dad: the price they’ll pay for their child to attend college.

About half of American parents rely heavily on sticker prices to determine which schools their children will apply to, surveys have shown. But those sticker prices can be misleading. When used correctly, net price calculators can help clients determine the real costs of college for their children.

This tool exists because Congress decided a few years ago that families needed to understand that college price tags are meaningless.

In fact, two thirds of students attending public and private colleges and universities don’t pay full price. At private institutions, students typically receive a 53 percent discount off their tuition. These price breaks, by the way, are often not related to income. The number of wealthy students who receive merit scholarships has been growing.

The federal government requires schools that participate in the federal financial aid program—and that’s most of them—to maintain two net price calculators on their websites. One is for freshmen applicants and the other is for transfer applicants.

A net price calculator allows families to look beyond sticker prices, average prices, and the price that the family down the street might have paid for their kid and focus instead on the only price that matters to a mom and dad. That’s the price that they will pay for their child to attend college.

The tool also provides a personal estimate of what a particular family must cover after subtracting any grants and scholarships that the student would be expected to receive from the federal and state governments and the school itself.

Parents will often need to gather their latest tax return and investment statements to use the calculators. Schools that offer merit scholarships, in addition to need-based aid, will also routinely inquire about a child’s academic profile that could include grade point average, test scores and class rank.

The simplest—but least effective calculators—could take less than a minute to complete. More accurate calculators may require 10 to 15 minutes or longer for a parent who hasn’t used one before.

These calculators give parents a pretty good idea of what a school will cost well before their children apply. If money is an issue, parents shouldn’t allow a child to apply to schools with high net prices. There is no point in letting a teenager get excited about certain universities if their costs will be deal breakers.


Separating the Wheat from the Chaff

Parents who use these calculators are more likely to shrink their college costs. But they need to be able to differentiate between calculators that provide excellent estimates of what a particular school will cost and those that stink.

Colleges were free to develop their own calculators and many schools, and especially private institutions, did so. But schools were also able to choose the easy route and use a free, off-the-shelf federal template. Most of the schools relying on the freebie version are state universities though many of the public flagship institutions such as the Universities of California, Illinois, Michigan, Texas and Virginia rely on their own models.

Critics argue that the federal calculators are so simplistic that they are worthless. One reason for the harsh assessment is because the federal version relies on cost-of-attendance figures that are at least two years old. Recently when I used the federal-based calculator for American University in Washington, D.C. the cost data was from 2010-2011; Hampshire College was using even older figures from 2009-2010.  Carnegie Mellon University and New York University are relying on cost figures from 2011-2012, even though families are now using these calculators for the 2014-2015 school year.

Schools that developed their own calculators can use outdated figures too, so it’s important when playing with any calculator to check how old the numbers are.

Unlike other calculators, the federal version doesn’t ask parents to report their actual income. Instead, the calculator only provides income ranges. The highest income range is “above $99,000.” The calculator also doesn’t inquire about a family’s assets.

Finally, the federal-based calculator is moot for any affluent family that is not seeking need-based financial aid. If a parent checks the box that his child won’t apply for need-based aid, the session stops. And the federal template does not include merit scholarship calculations.

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