March 5, 2010
College is expensive. Yet, what college costs and what families pay often end up being two entirely separate figures. To best prepare and budget for your education, do away with ballpark figures and calculate cost estimates for each of your college choices. With custom figures you can better formulate financial aid strategies and budgetary measures.
Average College Costs
The College Board, home of the S.A.T. and all things college, determined that over the past five years average tuition and fees increased by about 20% for public four-year institutions and 15% private four-year institutions. Tuition and fees for the 2009-2010 school year were as follows:
Public 2-Year Institutions: $2,544
In-State Public Four-Year Institutions: $7,020
In-State Public Four-Year with Additional Room & Board: $15,213
Out-of-State Public Four-Year Institutions: $18,548
Out-of-State Public Four-Year with Additional Room & Board: $26,741
Private Not-for-Profit Four-Year Institutions: $26,273
Private Not-for-Profit Four-Year with Additional Costs: $35,636
Private For-Profit Four-Year Institutions: $14,174
Despite these figures, the College Board calculates that net prices--what students actually pay for college--have decreased, thanks to tax benefits and an outpouring of financial aid. Net amounts of average tuition and fees for public four-year institutions come in at around $1,600 while private four-institutions come in at around $14,400.
Calculating Anticipated Costs
Families preparing for college in advance should utilize some helpful calculators to help estimate future college costs. The aforementioned College Board, as well as the website, FinAid, are two reliable sources for both college calculators and other financial aid information.
Calculators do quick work of the math required to anticipate future college costs but the math itself is not so difficult. It comes down to the safe assumption that college costs increase at twice the rate of inflation. Given the struggling economic conditions, the inflation rate throughout 2009 was primarily negative but rebounded into positive turf at the end of the year. Doubling such low inflation rates is risky. Average rates used in tuition calculators safely skew higher, from 5% to 8%. For more information, visit http://apps.collegeboard.com/fincalc/college_cost.jsp and http://www.finaid.org/calculators/costprojector.phtm
Calculating Estimated Financial Aid Eligibility
Financial aid is based on a very specific definition of need. The Free Application for Federal Student Aid (FAFSA) initiates the process by which your need is determined. The FAFSA gathers both parent and student financial information from one year, called a base year--the year prior to college enrollment. Using Federal Methodology (FM), a formula applied to income, assets, and other figures, The Department of Education's Office of Federal Aid calculates an Estimated Family Contribution (EFC). Your need is the difference between your Estimated Family Contribution and your anticipated Cost of Attendance. Need dictates your financial aid eligibility. This information is provided to schools as indicated by you on the FAFSA.
Though students can file a FAFSA as soon as it is made available, families can use the FAFSA4caster to estimate financial aid eligibility well in advance. Note that while you may be eligible for a certain amount of financial aid, there are other factors that affect what you are awarded, primarily federal aid caps, institutional funds, and the number of other eligible students. For more information, visit http://www.fafsa4caster.ed.gov/F4CApp/index/index.jsf.
Financial Aid Eligibility
During your financial aid process, you will likely encounter ways to maximize financial aid eligibility. Federal methodology, the formula that determines financial need, has a few blind spots: it examines only one year of family finances and only certain elements of those finances. Because in some cases this can unfairly overestimate family contributions, many financial aid guides provide ways families can adjust their base year finances in hopes of improving financial aid eligibility. The only financial tips you should follow are those that reside within the letter of the law. Additionally, the information you provide to the federal government needs to be valid and accurate; financial aid documents are regularly verified and fraud is duly penalized. Also keep in mind that efforts to maximize financial aid eligibility may not yield any substantial results.
Need is primarily based on income, not assets. Additionally, federal methodology has an asset protection allowance, which varies from year to year and is dependent on the age of parents, but can range from $30,000-$60,000, meaning those first tens of thousands in assets are not entered into the formula. Assets beyond that are assessed but purportedly with minimal impact on EFC. Federal methodology considers neither home equity nor retirement funds. You can minimize assets in your base year by paying down credit card debt or other loans or contributing to retirement accounts. You can also hold off on liquidating any investments. More crucial is the difference between parental and student assets. Federal methodology assesses assets by percentage. After allowances, it is assumed that students will contribute 20% of their own assets and 50% of their own income while assuming parents will only contribute 2.6%- 5.6% of their assets and 22%-47% of their income. Even if parental assets are larger, they weigh less on the financial aid scale. For this reason, it is recommended to have college savings in parental accounts and to utilize student accounts before parental ones. FinAid, an exhaustive financial aid resource, has sound and detailed explanations on federal and institutional methodologies: http://www.finaid.org/fafsa/maximize.phtml.
- "2009-2010 College Prices", The College Board (http://www.collegeboard.com/student/pay/add-it-up/4494.html)
- "Trends in College Pricing 2009", The College Board (http://www.trends-collegeboard.com/college_pricing/)
- "FAFSA4caster", Federal Student Aid (http://www.fafsa4caster.ed.gov/F4CApp/index/index.jsf)
- "FAQ: Financial Aid, Scholarships, and Fellowships", Mark Kantrowitz, faqs.org (http://www.faqs.org/faqs/misc.answers/college/financial-aid-faq/index.html)
- "Financial Aid & Your Savings", SavingForCollege.com (http://www.savingforcollege.com/financial_aid_basics/financial_aid_and_your_savings.php)
- The College Solution, Lynn O'Shaughnessy, FT Press, 2008
- "Maximizing Your Aid Eligibility" FinAid (http://www.finaid.org/fafsa/maximize.phtml)