Wouldn’t it be great if you were able to go to a college or university website, enter your financial data into a secure calculator and get the real annual cost to you if your son or daughter were admitted to that school?
The new Net Price Calculators (NPC) are supposed to provide that option.
October 29th is the date when all colleges in the United States are required to post calculators on their web sites that provide this type of cost transparency to prospective applicants and their families.
The jury is out on just how effective and accurate these calculators will be, and our research to date justifies those who have expressed serious doubts about this initiative.
This post is split into two parts:
Results of our research and why parents and planners should treat the NPC’s with extreme caution and diligence.
An account of the background and history that has led up to this development, (Essential Background) if you are not fully up to speed with college financial aid basics.
We must also confess that this is not the easiest or most entertaining topic, but it is an essential element to grasp and understand.
Higher Education Act 2008 – Feds To The Rescue?
The objective is valid. The current outcome is lacking.
The goal of the NPC provision was to help families determine how much they will really have to pay.
For an explanation of how students and families have been confused and disadvantaged by the college admissions and financial aid process see below: Essential Background.
Under the new system, prospective applicants will now be able to enter financial (and in some cases, academic) data into the NPC on a college website.
The intent was to provide a method for consumers to get a cost estimate from a college before an application for admission was made.
The U.S. Department of Education developed a basic NPC template. Other companies also offer NPCs that add more flexibility for the colleges.
Consequently, consumers are going to find a lack of uniformity among the NPCs they encounter and this will indeed create confusion.
Observations From Our Research Of Over 80 NPCs
Many families will not know whether or not a college employs tuition revenue management or “financial aid leveraging”General Confusion wherein students at the top of the admit pool (academically) receive preferential aid packages in order to influence enrollment decisions.
There are close to 1,000 colleges that employ some form of this practice. No single net price calculation will flag them.
Even if you know the college’s policy, you will not know where you stand until you get your award letter.
We conducted almost 200 calculations using a variety of different NPCs and found only two that truly incorporate the student’s academic record.
Even that does not speak to one’s standing within the pool of admitted students.
It was very concerning to us that each of the calculators we used collected different family data.
Colleges are permitted to use customized approaches, but without a uniform method, real comparisons among colleges are difficult to make.
There is no uniform way that colleges are required to display NPC results.
Finally, there will be serious confusion for divorced and/or separated parents. Some colleges will require financial data from both biological parents to ultimately determine a financial aid package, but we have not yet seen an NPC that can “run the numbers” for these situations.
Like MSRP Net Cost Is Only Part Of The Story
The uncertainty with regard to your standing in the pool of admitted students extends to awards made to meet financial need as well as merit scholarships.College Cost While average merit awards are embedded in the college’s average grant aid figure, this is only marginally informative or helpful for any individual applicant.
Merit scholarships may or may not be part of college’s aid package (a policy issue) and for some colleges any amount assumed is pure speculation. The NPC’s we researched often include a disclaimer in this regard and note that it will be subject to the judgment of Financial Aid Office or scholarship committee. That’s comforting.
Our research of 80 institutions indicated that net price varied by more than $10,000 for the same college depending on the EFC (Expected Family Contribution). We also found that variations among colleges for the same EFC can also be in the tens of thousands of dollars.
So you must enter data into the NPC for each school under consideration using the instructions provided on the respective websites. And, you should run the NPC in subsequent years too. This will account for changes in TCOA (Total Cost Of Attendance), EFC formulae, family finances and other important data.
Families should also be aware that timing is a key issue. Colleges may change their financial aid packages in the spring depending on the applicant pool and the enrollment targets they need in order to achieve net revenue goals. The aid estimate generated by completing an NPC in the high school senior year may differ from the aid awarded in the spring even with no change in financial data.
We advise you to print the NPC results from each college website in order to compare the results to the award you actually get. This will provide some potential leverage at decision time.
Establish Your Financial Comfort Zone
With all of these conditions in mind, when assessing one or comparing a list of candidate colleges it is up to each family to conduct an “affordability review” that determines precisely what you can comfortably handle for a net cost.
Remember, true net cost is TCOA minus grants and scholarships (money you do not need to repay).
But you will be offered student and parent loans to cover unmet financial need.
In part three of this series, we will discuss the affordability review and how it can help you evaluate your NPC results – before you write that first tuition check!
For decades, the financial aid system in the United States has been grounded in three major elements:
The college’s so-called “sticker price” (Total Cost of Attendance or TCOA)
The Expected Family Contribution (a calculated value based on a complex formula that allegedly reflects “family financial strength”, and
The difference between the TCOA and EFC which is defined as “Need”(or more precisely, a family’s maximum eligibility for financial assistance)
Financial Assistance has always been delivered in two flavors:
Self Help (Student Loans and Campus Work Study and,
Gift Aid (grants and scholarships) which do not have to be repaid.
After financial assistance has been subtracted from the TCOA, it is up to each family to find a way to pay the EFC. It’s the most basic responsibility in paying for a college education.
In a perfect world, each family would pay its EFC and financial assistance would cover the difference between the EFC and the TCOA. However …
In Most Cases, Confusion Reigns And Families Pay More Than The EFC
At their discretion, colleges often award financial assistance packages that fail to provide all of the aid for which a student is eligible.
There is a myriad of reasons for this practice, but let it suffice to say that most colleges do not provide financial assistance that covers one hundred percent of a student’s financial need.
And even in cases where one hundred percent of need is satisfied, grants and scholarships are combined with substantial portions of self-help.
Unfortunately, awareness of the EFC, its meaning and how to calculate and use it are often obscure to the public until late in high school. As a result, most families really do not plan and strategize with the EFC like they do about income taxes.
In fact, many financial services professionals will provide financial plans that simply include the time inflated TCOA when “helping” parents plan for college. Rarely is there any discussion of net price or establishing college savings strategies focused on covering the EFC versus the TCOA.
In and of itself TCOA is not a good metric when looking for the best value or when trying to compare colleges unless you are a well-to-do, full-pay family who has no need of financial assistance.
But what about everybody else?
Our Affordability Review (a major element in our CSGP membership program) is an essential foundation of our college planning approach. It enables a family to create a clear and realistic vision for a successful college funding campaign.