Net Price Matters More

What do the numbers $7,000, $42,000, $44,000, $56,000, $58,000, $72,000 and $81,000 have in common? Each is a net price estimate (rounded) that we received from a different college, using the same data inputs. That’s one example of why one might reasonably argue that Expected Family Contribution (EFC) is of marginal significance.

All colleges that participate in federal student aid programs are required to have net price calculators on their website. As an added convenience, when you complete one you can save your data to your student’s College Board account so that you can quickly complete multiple net price calculators and compare likely costs and aid packages at different schools. Not all net price calculators are created equal: some only calculate need-based aid, whereas others ask for data to help calculate any merit aid for which the student might be eligible.

Colleges can either use the U.S. Department of Education’s net price calculator or create their own. Since the DoE’s calculator uses the FAFSA to calculate EFC, you should expect that you are using a different version of the calculator if the school requires the CSS Profile. Regardless of which route the school goes, net price calculators have the following minimum requirements:

“Input elements must include:

  • Data elements to approximate the student’s Expected Family Contribution (EFC), such as income, number in family, and dependency status or factors that estimate dependency status*

*An institution may use either Federal Methodology or Institutional Methodology to approximate the student’s EFC.

“Output elements must include:

  • Estimated total cost of attendance;
  • Estimated tuition and fees;
  • Estimated room and board;
  • Estimated books and supplies;
  • Estimated other expenses (personal expenses, transportation, etc.);
  • Estimated total grant aid;
  • Estimated net price;
  • Percent of the cohort (full-time, first-time students) that received grant aid; and
  • Caveats and disclaimers, as indicated in the [Higher Education Act].”

The Department of Education also requires that net price calculators “clearly present a student’s estimated individual net price. The definition of net price is the amount that a student pays to attend an institution in a single academic year after subtracting scholarships and grants – forms of financial aid that a student does not have to pay back.” So, while the output may show loans– including subsidized loans– and work study as options to cover the student’s cost, the net price will be calculated separately from those amounts.

The DoE net price calculator uses median grant and scholarship amounts based on EFC to show net prices, which means that actual aid offers may vary. In addition to completing net price calculators at all schools that the student is interested in, students should research what additional institutional scholarships they may be eligible for to get a better sense of the range of offers they might receive.

You can also use net price calculators to try out different scenarios: What does the aid package look like if a sibling goes to college? Would I actually be penalized for having more savings? Just remember as you use them that they are designed to show first year student costs and likely aid packages so there may be some variation from year to year.

For what it’s worth, all of the schools my kids applied to provided a financial aid award that put total net cost within $2,000 of the net price estimate we received, so our experience was that these are reasonably accurate. But that’s a sample size of nine which is probably not statistically significant.

Does EFC Matter?

When you start looking at specific colleges, net price calculators are the best tool to figure out how much the school will actually cost– especially since they will show the aid package including self-help aid (loans and work study). Anyone who has gone through this process knows that the net price tends to differ quite a bit from EFC. And only the FAFSA provides an EFC, so you’re definitely going to get a different cost from a school that requires the CSS Profile. Which begs the question, does EFC matter? Continue reading Does EFC Matter?

What to Expect in the 2020-2021 FAFSA

Last month– as it does every May– the Department of Education released its Needs Methodology for the coming FAFSA. The Higher Education Act of 1965 requires that the Income Protection Allowance, Adjusted Net Worth of a Business or Farm, the Education Savings and Asset Protection Allowance, and the Assessment Schedules and Rates be updated annually for inflation. Continue reading What to Expect in the 2020-2021 FAFSA

Community College as a Pathway to a Four-Year Degree

Community colleges are often promoted as a great way for students to start on the path to a four-year degree: they’re lower cost than four-year colleges and it’s more likely the student can live at home to save additional money. However, a recent study showed that while 81% of students entering community colleges aspired to a bachelor’s degree, only 14% actually earn one within six years of starting at a community college. In fact, only 1/3 of community college students in the study’s cohort even transferred to a four-year institution. Continue reading Community College as a Pathway to a Four-Year Degree

Late-Stage College Savings Strategies

One of the bigger frustrations about 529 plans that I hear from parents is their reliance on investments to fund college. In the early accumulation years, parents don’t like the seemingly large allocations to fixed income that many plans have. As college nears, parents’ fears tend to group around two risk factors: market risk, whereby you might lose some or all of your savings in a poorly-timed market downturn; and inflation risk, where a conservative investment allocation means your savings are losing purchasing power due to inflation. Continue reading Late-Stage College Savings Strategies

Unemployment Rates

With college tuition increases outpacing inflation by a substantial margin, it’s normal to ask whether a college degree is worth the cost. One metric for determining that is whether a degree results in lower unemployment. A recent New York Fed report shows that college graduates have consistently lower unemployment rates than those without a degree. Not only that, but during recessionary periods (the shaded areas in the chart below) those without degrees suffer far higher unemployment rates. Continue reading Unemployment Rates

Scholarships and Taxes

Do you have to pay taxes on a scholarship? It depends what the scholarship is for. To understand taxes on scholarships, it’s worth remembering that the IRS defines qualified expenses differently for different purposes. Expenses get more or less the same treatment for taxability of scholarships as they do for education tax credits, so let’s review those. Continue reading Scholarships and Taxes

Student Loan Interest Rates 2019-2020

The May Treasury auction has taken place, which means that federal student loan interest rates for the coming school year have been set. And there’s good news: for the first time in three years, interest rates went down– by about half a percent. Keep in mind that federal student loan interest rates are fixed, meaning borrowers won’t see their costs go up should interest rates change in the future. Continue reading Student Loan Interest Rates 2019-2020