This series will take a look at the different benchmarks of the financial aid process mentioned in our previous overview article. We’ll dig deeper into each topic, providing examples and what you should know in order to prepare for the financial aid process.
Understanding The Expected Cost Of College Specific To Your Family
When families ‘shop’ for college, they mostly use the school’s sticker price as a basis for what it will cost. The sticker price is the total cost of room, board, and other fees, before financial aid. Most families don’t know that they’re able to estimate their Expected Family Contribution (EFC) in order to determine a more realistic cost of college.
When families don’t dig deeper than the sticker price, they can rule out schools that would otherwise be good fits. Just because a school’s total cost is $60,000 per year, it doesn’t mean that your family will have to pay this full price. What are your chances of receiving need-based aid? What type of merit-based aid does the school provide? These are some of the things that will determine how much families are ultimately required to pay.
There are calculators available online and offered through schools to allow families to gain a clearer perspective on what their cost will be at specific institutions. While these are not as all-encompassing as the resources I use when I work with families, they can be nice starting points. They are not guarantees, by any means, but they do provide a family with a better idea of what to expect, in terms of cost, than the generic sticker price. By using resources such as these, families may learn that the gap between the expensive private college initially deemed too pricey and the local state university isn’t as wide as it originally seemed.
Here’s an example:
Costly College is a private college that has a sticker price of $60,000. More Affordable University is a public college that has a sticker price of $30,000. Based on the sticker prices of each school, the gap in annual costs is $30,000. Easy math, and a seemingly easy decision for families that are concerned about how they’ll pay for school.
But if we dig deeper we see that Costly College is, on average, able to meet 80% of the need expressed by their students. This is compared to the 40% of need met by More Affordable University.
A student’s need is determined by a college using a simple formula:
Total Cost – EFC = Student Need
For this example, let’s use a family with an EFC of $10,000. To give you an idea, this family would have four household members, including one in college, a combined household income of roughly $80,000, and modest non-retirement savings.
When we run the numbers, we see that the gap between Costly College and More Affordable University is a lot slimmer than initially thought.
Returning to the aforementioned formula (Total Cost – EFC = Student Need), the need of the student applying to Costly College is, in this case:
$60,000 – $10,000 = $50,000
Keeping in mind that Costly College meets 80% of its student need, the need met by the college, in this case, is:
$50,000 x 80% = $40,000
This means that Costly College’s estimated cost to the family is actually $20,000 (their $60,000 sticker price – $40,000 of need met = $20,000).
Now let’s consider the case of More Affordable University. The need of the student, in this case, is:
$30,000 – $10,000 = $20,000
Remember, More Affordable University meets about 40% of their students’ need, so:
$20,000 x 40% = $8,000
This translates to More Affordable University’s estimated cost to the family being $22,000 (their $30,000 sticker price – $8,000 of need met = $22,000).
To summarize, the cost to the family of their son/daughter attending Costly College would be $20,000 and the cost to the family of their son/daughter attending More Affordable University would be $22,000 – funny how that works out, eh?
I’m not writing this to say that you should expect private schools to cost less than public schools. I’m writing this to illustrate that the gap in cost could be far less than it seems. I’ve also worked with families that have had a lower out-of-pocket cost to attend a private school with a much higher sticker price than they would have had attending a ‘cheaper’ public school. The key takeaway from all of this is that you shouldn’t rule out a school based on its sticker price.
I like to compare the process to that of applying for a job. By applying to a school you are not committing to enroll (except in the case of an early decision application, of course). The teen applies to the school, the school offers acceptance and financial aid (hopefully!), and the teen and their family then decide if they want to accept the offer or not. Don’t miss out on a great offer just because you didn’t think you could get the job / afford the school!