Saturday, July 18, 2009

Net Price Calculators - What Will College Really Cost?

For those of you with a son or daughter who has already been through the financial aid process, you may have wondered why the award packages that accompanied your child’s acceptance letters differed so dramatically from school to school. Afterall, you filled out the FAFSA form which provided your Expected Family Contribution, or EFC. How is it possible that the colleges each assessed your need so differently and how might you have anticipated what the true cost of a particular school would be?

I am a strong advocate for knowing what you are getting yourself in for in terms of college cost and what you can afford before your son or daughter’s heart is set on a school and the application is sent. Here is the good news. Come August 2011, some of the guess work will be eliminated from the cost estimate part of this process. One of the provisions of the Higher Education Opportunity Act of 2008 requires that all colleges and universities which receive Title IV federal funds offer a net price calculator on their website within the next two years. The purpose of these college specific calculators is to provide a closer approximation of what the true “net” cost of a particular college will be for an individual student, given the school's own financial aid practices and history.

While the difference in aid packages is the result of multiple factors (one of which is a college’s own limited financial resources and how it chooses to allocate them), a major contributor to the discrepancies is that schools often use their own criteria when it comes to packaging their financial aid awards, separate and distinct from that asked on the FAFSA. This is especially true for colleges that require students to also submit the school's own proprietary form or the CSS/Profile. Additionally, colleges exercise something called “Professional Judgment” which is their way of deciding how and when they will deviate from the hard numbers on the financial aid forms. So while online calculators found on multiple college source websites are a nice idea, they are far too generic to provide any real utility.

Colleges will have the option to develop their own templates or adapt one that is being developed by the Department of Education’s (DOE) National Center for Education Statistics (NCES) and which will be available to them in August of this year. Several schools have gotten a jump on the task and have already posted school-specific net price calculators to their websites. Among them are Amherst, Williams, MIT and Purdue. While these calculators still have limitations and cannot replace the thinking and ultimate judgment of the financial aid officer, they should provide a much closer “estimate” of the net cost of attending a specific institution. Each college’s model will draw from its own database, enabling it to match as closely as possible a family’s financial profile to its historical aid packages, which is also expected to include merit-based aid.

The implementation of net price calculators and other provisions such as the required annual reporting to the DOE of Cost of Attendance (COA) and financial aid awards will hopefully achieve the intended objective of improving the transparency on the cost of attending college. If done right, this should take much of the guesswork out of the cost side of the college equation.

Thursday, July 9, 2009

Influencing a Young Adult's Financial Habits - The Parent's Role

As your sons and daughters reach young adulthood and take those first steps towards independence (isn’t that the goal?!), ask yourself whether they are leaving the nest with a healthy attitude about money and are prepared to responsibly manage their personal finances. Why some kids form good financial habits and others falter in matters of money is a question posed by a program initiated at the University of Arizona and known as the Arizona Pathways to Life Success for University Students or APLUS.

With a representative sample size of 2,098 students who were freshman in the fall of 2007, the study seeks to understand the relationships and factors that influence financial habits and how these attitudes are formed. Questions asked in the survey focus on issues of budgeting, borrowing, saving money and paying bills.

The researchers began collecting their first set of data in the spring of 2008, during the students’ second semester, and used this information to create a statistical model that assessed how parental teaching, work experience and high school financial-literacy courses affected the students’ behavior. I doubt the initial findings will come as a surprise to anyone: the researchers found that parental teaching was by far the most influential factor. Its impact on students’ financial relationships with their parents, satisfaction with their own monetary behaviors, and the wisdom of their actual financial habits is more significant than the other two factors combined.

As the parent of teenage daughters, I must admit that the initial results of this study hit home…literally! We hear that the behaviors we model will influence our kids’ attitudes and leave an impression that lasts long after they leave home. But is it enough to exercise good financial habits without teaching them the basics? The message to take away from this study is that we as parents need to consciously teach and communicate good financial behaviors to our children and not take for granted that they will know what to do when they venture out on their own. This is not something they pick up through osmosis. They need to be taught the difference between risky and sound money management practices as well as purely practical things such has how to balance a checkbook. These are the lessons that will enable them to establish healthy financial relationships in the future with their families and partners.

The researchers at APLUS had initially planned to collect the next round of data during the students’ senior year, yet have decided to use the current recession as an opportunity to measure the economy’s effect on the sample group’s behavior. The results of the follow-up survey which the students completed this past spring are expected to be released in the fall. For anyone interested in seeing the report on the initial phase of the study you can find it at

Saturday, July 4, 2009

Tough Economic Times Prompt New Questions for College Visits

I’ve mentioned in earlier postings that many colleges have maintained or have even increased financial aid for the coming academic year in order to meet the needs of the increasing number of families unable to pay the full cost. Some schools continue to devote resources to financial aid so they can draw and retain desired students. Obviously pressure on endowments and college budgets mean that the additional funds for financial aid have had to come from somewhere. Most schools report that postponed building projects and staff and employee benefits have borne the brunt of it. Just last week Harvard announced that it would cut its staff by 275 employees, a move that will impact nearly every one of the university’s 10 schools. The point is that while families should be pleased by the commitment to financial aid, it is prudent to look beyond and question how these cuts might be impacting academic and athletic programs, and other offerings and amenities on college campuses.

So as you approach the college search, be sure to inquire about the fiscal health of the college or university. Colleges such as Antioch in Ohio and College of Santa Fe in New Mexico have recently closed their doors, unable to survive under their financial pressures. How unfortunate it must have been for their students who had to scramble to find a new home to finish their degree programs. Other colleges have taken less drastic measures, like cutting sports teams. Case in point: the student who had hoped to wrestle for MIT had better look elsewhere; the university will be eliminating 8 varsity teams come the fall, including wrestling.

Here are some suggestions on questions students and parents should be asking of college admission staff in order to feel confident that the academic, athletic and other programs they seek will not be cut from the budget in the foreseeable future.

1) What has been the college/university’s policy towards financial aid? How has it changed in this recession and what are they budgeting for the coming years?
2) Do they claim to be need-blind or need-aware and will they meet fully demonstrated need? Do they anticipate revising this policy in the future? Reed College in Oregon, for example, abandoned need-blind admissions this year and as a result, began to factor (or at least, now publicly) ability to pay into their admission decisions.
3) If you are eligible for need-based aid, find out the range of grant aid offered and the amount that students are typically expected to borrow. How has the school addressed its budgetary pressures and what steps have been taken to date to adjust? How have these steps impacted the college?
4) Ask specifically about staff cuts, in what departments, and what that has meant for courses and programs offered.
5) Has elimination of some courses or perhaps fewer sections offered impacted a student’s ability to fulfill requirements and graduate within 4 years (and while you’re at it, inquire about the 4 year graduation rate!)? It might be worth talking to students or to a faculty member of a particular department to get the real story.

If you are reluctant to ask these questions, keep in mind that you will be making a sizeable investment in your son or daughter’s college education and future. Like any other investment, this one entitles you to know how the money will be spent and what type of yields you can expect to receive.