How Much Does College Really Cost?
Most families don't pay "sticker price" for college, but learning the ins and outs of financial aid offers can be daunting. Here are some tips.
- College costs are exorbitant, but most families don't pay the full sticker price.
- Online tools estimate net prices after scholarship aid, but aren't necessarily accurate.
- Financial aid award letters can be confusing and lack uniformity, which can mislead students.
- Unmet need in financial aid may lead families to reconsider their college options.
College, you may have heard, can be expensive.
According to the College Board, the average tuition and fees at private colleges during the 2020-21 school year was $37,650. For in-state students attending public schools, tuition and fees cost $10,560; for those attending out of state, it was $27,020.
And that's just tuition. Add in other costs such as room and board, books and supplies, travel, and incidentals, and a year at a private college on average totals $54,880.
Some are even more expensive. One Ivy League school estimates next year's total cost at $83,298.
For that much, you could buy a new Maserati Ghibli.
But what if it were possible to get that same Maserati for the cost of a Toyota Corolla?
Sticker Prices and Discount Rates
A shrewd car shopper knows not to pay sticker price (unless demand far exceeds supply). Likewise, not everyone pays sticker price for college, either.
Some do. If a family is wealthy enough not to qualify for aid — or doesn't request it — then the bill they receive can reflect that price. Yet for many families, the bill falls far shy of the total cost.
How far? At private, nonprofit colleges, less than half, on average. During the 2020-21 academic year, the average discount rate for first-time, full-time, first-year undergraduates at these schools reached a record high of 53.9%. For all undergrads at these schools, the rate was 48.1%.
During the 2020-21 academic year, the average discount rate for undergraduates at private, nonprofit colleges was 48.1%.
Colleges "discount" tuition by awarding incoming students scholarship aid and forgoing tuition revenue. Some of that scholarship money comes from full-pay students. Because education consumers equate price with quality, colleges maintain a high-cost, high-discount model instead of lowering tuition.
Discount rates have increased in the face of escalating tuition costs, a commitment to access and diversity, and heightened competition for students. Between the 2011-12 and 2019-20 academic years, the average discount rate rose almost seven percentage points.
Navigating the Net Price Calculator
So how much should you expect to pay?
To determine that answer for a particular college, you should find its net price calculator.
Mandated by the Higher Education Opportunity Act of 2008 and developed through the College Board, the net price calculator is a free online tool providing personalized estimates of net price for each institution.
Every college's net price calculator is different.
Every college's calculator is different. All incorporate data about family finances and assets, and some include information about GPA, test scores, and other factors related to potential aid eligibility.
After crunching these numbers, the calculator will estimate the amount of scholarship aid the college may award, resulting in a net cost of attendance for entering students. Keep in mind some colleges include student loans and work-study jobs in the calculation, not just grant aid, so read the results carefully.
A similar tool called MyinTuition, developed at Wellesley College, streamlines the process with six basic questions about income and assets. More than 70 colleges, mostly private ones, offer this tool.
Deciphering the Financial Aid Award Letter
The big day is finally here. You rush to your mailbox (or inbox) to learn your educational fate. A response from your dream school awaits.
Congrats — you got in! Now comes the "simple" matter of paying for it.
Not long after, you receive the much-anticipated financial aid award letter, along with a few more from other schools that accepted you. Dutifully, you attempt to compare offers.
Yet you discover comparing award letters is like comparing cabbages to bumblebees. No two are similarly organized, and all use different terms to describe what you assume are the same thing.
In its report titled "Decoding the Cost of College," the think tank New America and nonprofit uAspire discuss such inconsistencies among 11,000 award letters they analyzed, most of which went to low-income, Pell Grant-eligible students.
Of the 455 letters offering unsubsidized student loans, they discovered, there were 136 unique terms for this loan, including 24 that didn't even use the word "loan."
What's more, a third of the letters didn't include any cost information for context. And 70% grouped loans and work-study awards together with grants, so it was unclear how much aid would have to be paid back.
The "net" result is one big mess.
"On one letter you have net cost, which might mean one thing, and on another letter something might say 'net price' or 'net cost,' and it might mean something totally different," said Rachel Fishman, deputy director for higher education research with the Education Policy program at New America.
"So students think they're making this side-by-side comparison because they both have the same terms, but they're actually not the same thing."
Fishman recommends making an apples-to-apples comparison on a spreadsheet, which might entail determining each school's full cost of attendance and figuring out how each institution defines its financial aid terms.
Sorting Out Grants and Loans
Grants don't have to be repaid. They come from colleges themselves in the form of merit- or need-based scholarship aid. Some are for one academic year only, while others cover as many as four.
Grants also come from private sources such as local organizations and foundations. The federal government awards grants as well, primarily in the form of Pell Grants.
One of the key things for students and their families to determine is the breakdown of grants vs. loans in the aid offer.
Loans are a different matter. They do, of course, have to be repaid, and all have varying terms.
Federal loans are either subsidized or unsubsidized. If you have financial need, you can get subsidized loans, which come with low interest rates and the option to defer payments interest-free until after you graduate.
You don't have to demonstrate financial need to get unsubsidized loans, which have a slightly higher interest rate. And while you can defer payments with unsubsidized loans, too, you must pay interest along the way.
In addition, your parents can take out a federal Direct Plus Loan.
Finally, you can get a private loan from a bank or other financial institution. Rates vary considerably and tend to be higher than federal loans. Your college also might offer loans as part of its aid package. Some private loans allow deferment.
Bridging the Tuition Gap
When all the dust settles and you've added up grant and loan numbers and subtracted them from the full cost of attendance, you might be left with unmet need, or a "gap."
On average, students face a gap between college costs and financial aid offers equal to about a third of the total first-year cost of attendance.
In its study of award letters, New America and uAspire found that, on average, students faced a gap equal to about a third of the total first-year cost — roughly $12,000. Work-study jobs offered a partial solution for some students, though only to the tune of about $2,400.
What about the rest? Families might be pressed to tap deeper into savings or take additional private loans, if possible, including a home equity loan. A parent might consider taking a second job. Maybe it's time to sell that priceless collection of Slim Whitman records.
Assessing College Affordability
Another option would be to reconsider the dream school scenario altogether. Students reject dream school offers all the time, often for financial reasons.
Given the hardships endured during the pandemic, one-quarter of high school students say they can't afford their top choice college. But you likely have cheaper alternatives, and some might be just as good.
Bear this in mind when calculating whether you can afford a particular school: The financial picture before you is probably as good as it gets. Institutions notoriously front-load scholarship offers to lure first-year students, reducing awards as students become sophomores, juniors, and seniors.
Consider asking your top choice school for more aid; the worst they can say is no.
Tuition and fees normally increase every year, too. Unless your family financial situation changes dramatically, the affordability factor will decrease over the course of your studies.
You should conduct your due diligence and ask schools to clarify costs and awards. You should also consider asking for more aid; the worst they can say is no.
In the end, if your dream school isn't meant to be, fine. In the immortal words of Stephen Stills, "If you can't be with the one you love ... love the one you're with."
Feature Image: Peter Dazeley / The Image Bank / Getty Images