I got a big response to last weeks article about IDOC, a theoretically ‘helpful’ College Board service that is causing more confusion than clarity, so I thought I’d stick with the theme.  Today’s topic:  Tuition Calculators.

As my regular readers know, in the modern college era many schools strategically use TUITION DISCOUNTING as a marketing tool.  Case in point:  a certain Superbowl MVP’s alma mater, a public university in a small state, offers many of its out-of-state (read: full-tuition paying) students a one-year ‘scholarship’ to entice them to attend.

There’s often a big difference (like five-figures) between the sticker price of college — tuition, fees, books, room and board — and the net price, what you actually will be expected to pay through your college savings or excess income (best case) or personal savings and loans (worst case).  In fact, just over 66% of incoming freshman will get some sort of break off the sticker price. That’s called the Net Price of College, a term I’ve been using and my clients have thankfully been paying for years.

Then in 2008,  the federal government got involved, to ‘clarify’ things.  To ‘help’ families understand the difference between the sticker price they see and the net price they’ll pay, they passed a law requiring every college to provide a net-price calculator on its website.  In theory, the calculators were to provide parents with an accurate estimate of their family’s expected net price (total costs minus the average amount in grants or scholarships that their student may receive).  In practice, the calculators offer a ‘bewildering array of possibilities, with potentially troubling inconsistencies.’ (NY Times’ words, not mine – though I certainly agree with the sentiment).

Even the seemingly basic questions — like how much do you earn — can be confusing.  Some of the calculators out there want all of your wages, others only your adjusted gross income.  No wonder I get more calls from bewildered parents who have actually done their homework than those who haven’t.

Look, the calculators are a good start…as an early planning tool…but they’re far from perfect and the results should be used as a reference point only.  Here’s why.

1. Not all calculators are created equal.   Some colleges are using the template created by the US Dept of Education.  It asks only nine questions, including how many children the family has in college, family income, and whether the student is married or has dependents.   Problem:  These nine questions are all that the government is requiring colleges to ask, but there are 100 questions on the FAFSA and dozens of other factors that can seriously affect a family’s expected contribution (EFC). Those inputs can be as benign as your highest level education to as complex as how to value your business, personal & student assets.  There are at least 575 colleges that engaged Student Aid Services, a private company, to provide them with much more involved versions of the calculator.  Given the disparity, it’s difficult to get a reliable result and/or to make a true comparison nationwide.

2. Net Price is NOT necessarily the Net Cost To You.   I agree with Mark Kantrowitz of FinAid.org who cautions that many calculators figure the net to you after including student and parent loans.  That’s risky.  Not all schools dole out financial aid equally.  Some have no or low loan policies and will offer more grants (which you don’t have to pay back), whereas others offer loans.  Though at first glance the net cost may look the same, if the school is discounting its price with student loans, the long-term costs can be astronomical.  Make sure that you know which schools on your list are loan averse.

3. The Results Are Not Guaranteed For Four Years.  The calculators will give you an ‘estimate’ of what you might pay for the first year ONLY.  Your circumstances, the school’s and the federal government’s change year-to-year.  Some schools will ‘front load’ grants to induce a prospect to come.  You have to re-apply for financial aid every year, and therefore it’s very important to know the financial history of a particular school to anticipate whether your costs could go up in future years.

3. They Do Not Really Account For Merit Discounts.  The calculators work best when determining need-based financial aid awards, but they are less accurate when factoring how merit scholarships (awarded by the Institution) can reduce the cost of college.  Although the most selective schools like the Ivies only offer need-based grants, many other good, but less competive institutions, and even great public universities looking for out-of-state applicants to boost their net revenues, will give desirable applicants incentives (in the form of scholarships) to enroll.  Why?  Aside for the aforementioned bump in net revenue for publics, schools are very concerned about their yield (% of accepted applicants who enroll).  Positioning your student to apply to schools that are interested in having them attend should be an important consideration in the admissions process.  Since merit is fairly subjective, the net calculators will do little to inform those decisions.

Overall, the calculators can be useful as guides to families engaged in early college financial planning and as a starting point for parents to make arrangements to cover the balance.  They are not, however, set in stone.  Much can be done to help you afford a college of your child’s choice.  It’s best to take action early, but even if you have an 11th grader, you still have a small window of opportunity.  If this is you, I don’t know what you’re waiting for.  Your are now already one month into your base year, the year that will be used by the government and the colleges to determine your eligibility for grants.

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