How To

Estimating the Cost of College Using a Net Price Calculator

Saving for college

Last week, my 8-year-old and I went on a bus ride through the idyllic campus of my alma mater, University of Washington. Around Seattle, the university is spelled UW and pronounced “U-dub.”

While my daughter looked out the window and pointed out the prettiest and ugliest dorms, I wondered whether my wife (also an alum) and I would be able to afford to send her there in ten years.

When I attended UW in the early 2000s, I paid about $4000 per year in tuition and fees.

The current list price? $12,383.

And that doesn’t include room and board, transportation, or textbooks. (If you include those items, the price jumps to over $26,000.)

It does include a 21.5% tuition increase in 2011 and a further 17% increase in 2012. The headlines are predictably terrifying: $20K in-state tuition may not be far off in Washington, reports the Seattle Times.

What if my kid doesn’t want to go to UW? What if she gets into Stanford, which lists its total annual cost as $58,846? Compared to an average family’s income, that might as well be a trillion dollars.

Well, here’s what I want to tell you: headline tuition prices have almost nothing to do with what middle class families pay for college. They’re as relevant as the price of first-class airline tickets.

In fact, if you’re not rich, rising tuition can actually be a good thing for you and your kids. That’s because many colleges, including UW, are hiking tuition for wealthy and out-of-state students and using the money to subsidize in-state students.

That’s not to say all colleges are affordable for all families. Many are completely unaffordable.

Luckily, there is a simple tool to determine whether or not a particular college is roughly within your family’s means.

Introducing the net price calculator

Starting this year, the Federal government requires all colleges to post a net price calculator on the college website.

The calculator asks a few—or a lot—of questions about your family and its money, and then estimates what the college will charge you per year after grants and scholarships are applied.

The net price includes room and board, fees and textbooks, but it doesn’t take into account student loans or work-study programs — only grants. (The net price also doesn’t include Federal tax breaks, which can lower a typical family’s tuition bill by thousands of dollars.)

Ever since I got my first TI-30, I’ve loved playing with calculators. So, I pulled up my family’s 2011 tax return and our current account balances on Mint.com, and I got to work.

I reported all of our numbers accurately, except I gave our daughter’s age as 18 instead of 8. Here are the results of the net price calculators at five well-known colleges and universities:

College List price Net price
Pomona 58000 19834
University of Washington 19540 19540
NYU 54441 44441
University of Michigan 50352 35667
Stanford 56750 11000

 

Whoa — Stanford is actually the cheapest college I came up with. How can that be?

Each of these colleges is representative of a particular category. Are you allergic to broad generalizations? Then you’re going to hate this next bit, even though it’s true.

Pomona College and Stanford are elite private colleges. (Incidentally, I dropped out of Pomona in 1996, but the Alumni Association really thinks I’m going to start donating any day now.)

Elite colleges are highly selective and have large endowments, which allows them to be very generous with aid. Stanford simply doesn’t charge tuition to families making less than $100,000 per year. (They do charge for room and board, but usually at a subsidized rate.)

All Ivy League universities are in this category, of course. So, if your kid gets into an Ivy and your family falls within a certain income bracket, it’s affordable — period.

University of Washington is an in-state public university. Public universities can’t be as generous with aid as Ivies and Ivy wannabes, but state subsidies keep the list price tuition lower.

As you can see, based on our 2011 income, UW will charge us full price. If tuition keeps rising 20% per year, that’s going to be a problem. But as you’ll see in a minute, it’s not as bad as it looks.

University of Michigan (I picked it because my dad went there) is an out-of-state public university. These are among the worst deals out there for middle class families.

When my younger brothers wanted to attend UW, our parents moved from Oregon to Washington so they could qualify for in-state tuition. Good move.

Finally, NYU (which I picked because I’m a fan of the show Felicity) is a non-elite private university, although I assume they wouldn’t want to be characterized quite that way.

In any case, plenty of people will pay to go to NYU because it’s in Greenwich Village. Despite this, it is completely unaffordable for my family.

Within each category, overall affordability is highly consistent. A middle class family can afford (with plenty of savings, summer jobs, and sacrifice, of course) to send its kids to a Mega State University, community college, military school, or an elite college.

They absolutely cannot afford an out-of-state public university or non-elite college. Columbia? Yes. NYU? No.

This is really not much of an oversimplification. Try the calculators yourself, or look at the net price data broken down by family income at the U.S. Government’s College Navigator site.

How accurate are the numbers that come out of these net price calculators? Well, they are accurate enough to get you started, according to Mark Kantrowitz, publisher of the indispensable FinAid.org.

“It tells you whether it’s inside or outside the ballpark of affordability,” says Kantrowitz. The more questions a calculator asks, the more accurate it’s going to be.

In any case, you have to scrutinize the results carefully. Colleges are required to give you an estimated net price, but they may also list a “net cost,” which subtracts the value of loans and work-study.

This makes Kantrowitz furious. “A lot of this boils down to blurring the distinction between grants and loans,” he says. Loans make college more expensive, not cheaper.

NYU, to my surprise, doesn’t really see the landscape any differently. John Beckman, a vice president and spokesman for the university, divides colleges into three categories: taxpayer-dependent (UW), endowment-dependent (Stanford), and tuition-dependent (NYU, for-profit colleges, and so on).

“We’re frank about this and its implications,” says Beckman. “Roughly 2/3 of every dollar in our budget comes from tuition.”

NYU’s admissions are need-blind, meaning the university admits students without regard to ability to pay, but it cannot then make a generous financial aid offer to every undergrad.

“To be sure, we wish NYU’s financial circumstances were otherwise, that our financial resources allowed us to match the generous financial aid of some peer institutions,” says Beckman.

Beckman’s analysis provides another way for middle class families to think about college cost: college is expensive, period. If you want to be able to afford it, choose a college where someone else (state government or the college endowment) is footing most of the bill.

Back to my old stomping grounds

Now, back to the worrying tuition trend at UW. With the financial crisis, state aid to universities is down nearly everywhere and Washington State is no exception.

According to College Navigator, net price at UW has been going up along with list price (oddly enough, the average net price for families making $48,000–$75,000 has remained static).

My family’s 2011 tax return is unrepresentative: for assorted reasons, both my wife and I made more money last year than we expect to make this year or the next.

So I went back to the calculators and ran them again with an estimated future income of $60,000, which is still what I would call solidly upper middle class.

Here are the new results:

College List price Net price
Pomona 58000 9434
University of Washington 19540 16943
NYU 54441 40941
University of Michigan 50352 29611
Stanford 56750 5000

 

My kid is so getting into Stanford. But just in case she doesn’t, UW doesn’t look so bad.

According to Kay Lewis, financial aid director at UW, the university is becoming more generous with aid, not less. “At least 1600 more students received grant assistance in 2011-12 than in 2010-11, as UW increased the amount of UW grants available,” she says.

The university’s grant budget increased by 39% last year over the previous year. “These are just our institutional grants,” adds Lewis, “and we saw increases in the state grant program and the Pell Grant program as well.”

Furthermore, UW offers the Husky Promise grant program, which offers all Pell Grant recipients free tuition. Last year, 8500 of UW’s nearly 28,000 undergraduates qualified.

Making college affordable and avoiding student loan debt

What if your smart kid wants to apply to an apparently unaffordable school just to see if the college coughs up extra cash in the form of merit scholarships or grants that didn’t appear in the net price calculator results?

Be very, very wary of this strategy.

Applying to colleges is a time and money sink, and getting accepted by a college is like falling in love, only more expensive.

For example, once you get that fat envelope from NYU, you’ll start imagining yourself in the West Village, hanging out with Keri Russell, and then you’ll be in big trouble — you’ll sign anything to go.

Kantrowitz sees this all the time and he knows how hard it is for parents to tell kids that their dream school is unaffordable. “They probably need to say no, but sometimes they don’t and they end up, both the child and the parents, with too much debt.”

I’ve already written about why I consider student loans to be the financial equivalent of toxic waste.

Despite all the scary things you’ve heard about college tuition, it’s still possible—not easy, but possible—for a middle class family to give their kids a great college education without taking on a crushing load of parent and student debt.

“And you’re going to get a great-quality education, even at a state school,” says Kantrowitz. “In fact, many of them are comparable to Ivy League institutions.”

Hopefully this will all still be true in ten years.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.