Saturday, October 30, 2010

College Costs - Achieving Greater Transparency

Even in a down economy with inflation almost non-existent, the cost of a college education continues to rise at a shocking 5% a year for private colleges. It’s not surprising that more families are asking the question: can we afford this? Improved disclosure requirements under the federal Higher Education and Opportunity Act (HEOA) may not help you pay the bill, but they will take some of the guess work out of the process.

Until recently it had not been so easy to determine a school's true Cost of Attendance or COA, which includes all the expenses associated with going to college, beyond just tuition and fees. Fortunately for the college consumer, schools are now required to provide reasonable estimates for all costs, including books, travel and other personal expenses. HEOA also stipulates that colleges have until October 2011 to display net-price calculators on their websites. These calculators will enable families to obtain a ballpark estimate of the net cost to them, after factoring in the financial aid package they might reasonably expect to receive from the school.

For those who do not wish to wait until a year from now, there are ways to get closer to estimating the actual amount they will pay. One of the best sources is the US Department of Education’s College Navigator website: This site provides a treasure trove of data pertaining to individual college costs and average financial aid awards based upon income ranges. Type in the name of a school and you will have access to the most current data reported to the U.S. government by the college. My only caveat is that you use these ranges as a guide; they are not a reliable determinant of what you will ultimately pay. Financial aid results are driven by a rather in-depth review of your personal data. Simply comparing your income to the school's posted ranges might be misleading, as income alone does not capture your full financial picture. You won’t know your actual out-of-pocket cost and the composition of the financial aid package until you file your aid applications and have the final award letters in hand.

The soon-to-be required net-price calculators will be an even more powerful tool for gaining an understanding of college costs. Colleges have the option to either build their own or use a template created by the federal government. At a minimum, the calculator must contain eight data elements designed to determine dependency status, estimate the Expected Family Contribution and approximate the COA. A handful of colleges, including Princeton, MIT and Purdue University, have gotten a jump on the task, and have already posted calculators on their websites. Even if your child is not applying to one of these colleges, you might want to play around with their calculators to get a sense for how varied your financial aid results could be from school to school.

Familiarizing oneself with the cost of college before a student actually applies will help families realistically adjust their expectations and target schools that are good fits both academically and in terms of affordability. The schools with the highest sticker prices might not be the most expensive after financial aid. Net price calculators which will be school specific should be reasonably effective in providing a ball park estimate. But as with many things, the devil will be in the details. You should use these tools to ensure that both financial and academic safeties find their way to the college list. Creating a list with affordable options will help everyone sleep better at night.