All too often, families overpay for college because they are woefully uninformed. They also get caught up in believing things about college admissions that are just plain wrong.
Here are five things that your clients should know about how to be smart college consumers:
1. Understand the limits of college cost calculators.
College cost calculators discourage some parents from saving for college when they see the projected price tags and simply give up.
What these calculators fail to take into consideration is that most families do not pay full price for college. At state universities, 78% of students who apply for aid receive a grant from at least one of the: federal government, state government and/or school itself.
Meanwhile, at private colleges, 92% of students who apply for aid receive some type of grant – either need-based, merit-based or both.
According to the annual survey of the National Association of College and University Business Officers, the average tuition discount for freshmen attending private, four-year colleges is a whopping 59%. This figure includes both need-based and merit aid.
I would strongly recommend that you warn younger parents that college cost calculators will very likely overestimate the price that they will pay for school. Hearing this reality might make parents less discouraged about saving for this big-ticket item.
2. Stop fixating on financial aid.
Many parents obsess about whether they will qualify for financial aid and wonder if saving will hurt their chances. What your clients don’t understand, however, is that simply getting a discount from a college is what’s important, regardless of what it’s called.
Financial aid isn’t an either-or situation. Often accepted applicants get a merit award before a school determines if a student qualifies for need-based aid. Once a student’s eligibility for need-based aid is calculated, the merit award he or she received will be applied to any need.
Here is an example:
The college costs $65,000 and the student receives a $25,000 merit award. The financial aid formula determines that the family can afford to pay $30,000. Subtracting the student’s award and their expected contribution from the sticker price would leave a gap of $10,000.
With this information, the school would apply the $25,000 merit award to meet the financial need and then it would decide if it should provide a final $10,000. Typically, a school would first meet unmet need with a federal student loan and then sometimes a federal parent PLUS Loan.
The vast majority of private and state colleges and universities provide both need-based aid and merit awards.
3. Families need to know what their potential costs will be.
Families should know what colleges and universities will expect a family to pay based on their own income and assets.
They can easily get an early heads-up by using an expected family contribution calculator. The EFC is expressed as a dollar figure—the lower the number, the less asset and income a family has, and the less the household can afford to pay for college.
This dollar figure is often an underestimate, because most institutions typically do not meet a student’s full need.
I recommend that parents use the College Board’s EFC calculator because it generates the federal methodology tied to the Free Application for Federal Student Aid as well as the institutional methodology that is tied to the CSS Profile. The vast majority of schools only use the FAFSA, but roughly 200 schools—nearly all private—also use the CSS Profile.
I’d recommend parents start using an EFC calculator as early as their child’s middle-school years, so there won’t be surprises later on.
4. Learn what other offers are available.
When students receive their award letters from colleges, they don’t know what they might have gotten from other schools that weren’t on their radar. They also don’t know if the schools that accepted them offered better deals to other applicants.
With high college prices, it’s important for families to collect as much pricing information as possible—TuitionFit can help. The website, which has been called the Kelley Blue Book of college pricing, can be a game changer for families that want to find a school within their price range.
Students who share one or more of their own award letters will get to see all of the real prices (and corresponding financial aid offers) for free that were shared by other students and families with a similar financial need and merit profiles.
With this online platform, parents can compare the awards their child has received with the aid that similar students are getting offered by colleges and universities all over the country in real-time. In doing this, families could discover college candidates that never previously crossed their radar.
You can use information from TuitionFit to appeal for higher awards and potentially apply to other colleges. And you should know that many colleges will accept applications well past their deadlines.
5. Investigate the financial stability of colleges.
Some higher-ed observers predicted that COVID-19 would force the closure of many small colleges. It hasn’t happened yet. It’s wise, however, to check out the financial health of higher-ed institutions. One easy warning sign to note is the size of the college’s student body. I’d be leery to attend a college that has less than 1,000 students.
Hechinger Report is one resource to check the financial health of a school. It’s a higher-ed nonprofit news operation, which offers a free tool called Financial Fitness Tracker. The tracker shares the results of its financial stability analysis of 2,662 private and public four-year and two-year colleges and universities by examining key metrics including enrollment, tuition revenue, public funding and endowment health.
Lynn O’Shaughnessy, a nationally recognized college expert, offers an online course – Savvy College Planning - exclusively for financial advisors. Click here to get Lynn’s guide, Finding the Most Generous Colleges.
