This is the second installment in a four-part series on Effective College Strategies for Today’s ‘Middle Class.’ While I know that right now college may feel like an impossible situation, I hope that this series will show you that it’s not!
Last week I wrote about a whole bunch of bad news. First I told you about a father (not a client) who had just broken his daughter’s heart by telling her (after she had already gotten herself admitted) that her ‘dream college’ wasn’t going to be in the cards financially. As expected, she wasn’t taking the news well, and he was enraged and raging.
Let’s just say this was not the first time I’ve heard this type of after-the-fact shock and rage-against-the-system anger from otherwise intelligent, hard-working, professional middle-class parents… which is why I felt compelled to tell you about Dad # 2 (the one who had blown me off later in the week), and whom I’m pretty sure will be seeing the same look of disappointment on his son’s face and spewing the same vitriol at whomever will listen in a few years time.
And yeah, I was a bit annoyed by both Dads (but especially Dad #2).
And that’s when I introduced Dad #3, my own Dad. He enrolled in Amherst College in 1957, the year of Sputnik, and he recently returned from his 50 year reunion and shared with me the tuition bill that his parents received in the summer of ’57. The total cost of attendance at Amherst for one year back in 1957 was $1,532 (click here to see the bill), which is about $12,000 in today’s dollars. That seems like a small pittance for today’s parents who are looking at published prices in excess of 50 Large ($56,710.00 at Amherst). But in reality…
Amherst (and other selective colleges) actually cost MORE back then, relative to average income, than they do today.
This is not my opinion. It is a fact, and it is not unique to Amherst.
You see, the average American family earned $5,000 in 1957, according to the US Census. There was no financial aid or merit system back then, only the GI bill. So, based on the averages, in 1957, one year at Amherst would eat up 31% of the average American family’s income.
Today, the average American family income is $61,265. With financial aid and other incentives, a year at Amherst should cost that family only $8,298, or 14% of income. (source: College Board’s Net Cost Calculator ).
If you earn $100,000, then Amherst should cost you about 19% of income.
AGI of $150,000? – you should be out-of-pocket about 23% of your income maximum.
So while the media and others like Dad #1 are busy railing about out-of-control and inflated college prices, they are missing the much bigger picture. College price tags (those that are published and widely touted) are largely meaningless. They are merely list prices set by the colleges (with the assistance of highly paid marketing consultants) to inflate their prestige, rankings, admit ratios, and yes, even their bond ratings. If it costs more (at least on paper), it must be better, right?
But there’s a game changer that wasn’t around in 1957 or in 1987, for that matter. Today, there is more than $150 billion in aid, scholarships and ‘discounts’ that each school strategically distributes to induce desirable applicants to enroll. So, while the list prices of colleges may be rising disproportionate to inflation, so too are the discounts.
In fact, in 2011, unlike in 1957, two-thirds of college students will receive scholarships and grants that discount the published list price considerably. This discounting is strategic, it is business, and it is intentional on the part of the schools. Think about it: if a college can appear selective (read: pricey) and therefore prestigious, and then get to offer generous price incentives to boot; well then, they are not only better than the next guy, but they deliver more value as well.
I mean, who doesn’t like a good bargain? It’s brilliant marketing, but more importantly, it presents you with an opportunity.
College is a capitalist enterprise, and a very big one at that. And like most large enterprises, they try to set the rules in their favor. But that doesn’t mean that you can’t manage them to yours. When the President announces ‘spending reductions in the tax code’ (as he did last week), do you sit back and wait until you’re hit with the bill in April, or do you call your CPA and find out how to ‘manage’ the change?
Well then, consider this my announcement of a ’spending reduction in your college bill’ and your welcome to the new college reality. If you’re savvy (and if you’re reading this then I believe that you are), you will learn about the new rules of the college game, and you will alter your tactics to give yourself an advantage!
If you’re the parent of a college-bound child, the question you should be asking is not how much a particular school ‘costs’, but how much of that cost you will actually bear. That’s what Higher Ed insiders call the Net price, and that’s what most of us should be paying! And despite whatever else you’ve read or heard, that’s how you build an affordable college game plan in 2011.
For Dad #1 it’s too late (this year). And for Dad #2 it might be, based on his apathy. And that’s because despite all of the evidence, there remains a very real disconnect between how a family should shop for college today and how they actually do so. Please don’t let this become your family.
At my college planning workshops, I go over the Net College Cost Calculators and specific strategies and steps that you can take to help your child select and get admitted to the best possible college for them, at a discounted NET price that you can afford. I’ll be conducting my last one of the school year on May 3 in Weston. Click here to register and feel free to forward to a friend or neighbor with a high-school age student. They’ll thank you for it.
Best,
Peter
P.S. In next week’s installment, we’ll take an uncensored look at what’s driving the recent uptick in applicants, a.k.a. ‘application inflation’, yield, and how to look beyond the obvious when researching colleges. I’ll also be calling out those schools that I believe are using misleading statistics to seduce applicants. You might be surprised at which schools make my disslist.
