Families Aren’t Using this Cost-Busting College Tool
If the price of college is freaking you out, here is one of the very best things that you can do to save yourself a lot of money and grief before applying to colleges:
Start using net price calculators!
If you know what a net price calculator is, you are way ahead of most families. When I give talks at high schools, I routinely ask everyone in the audience if they have used a net price calculator. On a good day, I may get one or two parents raising their hands.
And that is scary.
Net price calculators can be a valuable ally when evaluating which colleges will be more affordable. And they can be equally helpful in identifying which colleges will be budget busters.
Before using net price calculators, here are eight things that you need to know about these valuable tools:
1. Understand what these calculators do
A college’s calculator is designed to generate a personalized estimate of the cost of one year of college at the institution for your family. The tool calculates what gift aid an applicant may be entitled to from these sources:
- Federal grants
- State grants
- Institutional aid
A net price calculator adds up this potential free money and subtracts it from the college’s cost of attendance to obtain the net price.
Here’s an example:
|Minus grants/scholarships:||- $36,000|
|Net price:||= $14,000|
When determining potential awards, a net price calculator relies heavily on the relevant tax returns of the parents and teenagers, as well as their latest investment account statements.
2. Understand which colleges offer net price calculators
Federal law requires that colleges and universities that participate in the federal financial aid system (and that’s nearly all of them) offer a net price calculator on their website. These calculators are designed for incoming full-time freshmen. Some colleges offer an additional net price calculator for transfer students.
3. Use net price calculators to avoid emotional decisions.
Traditionally, students have applied to colleges without any knowledge of what their ultimate price would be. Sure, it’s easy enough for families to look up sticker prices, but that is rarely the price they pay.
Faced with a pricing vacuum, families would usually wish for the best possible outcome: After teens submit their applications, parents hope against hope that their children will be showered with generous award packages.
When awards turn out to be mediocre – or worse – nonexistent, panic sets in as families grapple with how much they can or should sacrifice. In these emotional situations, everyone can feel pressured to pay more – or borrow more – even if it’s financially reckless.
You can avoid making emotionally-compromised decisions by using net price calculators well in advance of a teenager applying to any college. Parents should run the net price calculator for any colleges that a child is considering to make sure each institution is financially feasible. If any of the colleges aren’t good financial fits, teenagers should remove them from their college lists.
4. Know how to identify accurate net price calculators.
The quality of net price calculators can vary significantly. The least reliable ones for many families will rely upon the federal calculator template, which colleges can use for free.
Roughly half of colleges use net price calculators that depend upon the federal template. Other colleges and universities created their own calculators in-house or hired outside vendors to build them.
The federally-inspired calculators do not ask about:
- Parent(s) assets
- Student’s assets
- Actual parent(s) income figures
- Actual child income figures
These simple calculators only ask families to select an income range that can make the resulting net price unreliable. Here is what the income question looks like:
What is your annual household income after taxes?
- Include income earned by yourself and your parent(s).
- Include income from work, child support, and other sources.
- If your parent is single, separated, or divorced, include the income for the parent with whom you live.
- If the parent with whom you live is remarried, include both your parent's income and his/her spouse's income.
|Less than $30,000|
|Between $30,000 - $39,999|
|Between $40,000 - $49,999|
|Between $50,000 - $59,999|
|Between $60,000 - $69,999|
|Between $70,000 - $79,999|
|Between $80,000 - $89,999|
|Between $90,000 - $99,999|
The federally inspired calculator also doesn’t ask about the child’s grade point average, test scores or other academic information. Consequently, the federal calculator doesn’t calculate merit scholarships, which is a major consideration for higher income families.
In contrast, the most accurate net price calculators require sharing specific figures on tax returns and will ask about relevant assets including college accounts, taxable accounts, custodial accounts and savings/checking accounts.
Generally, the more questions asked by a net price calculator, the more accurate the results.
5. Use net price calculators to play detective
Savvy parents will turn to calculators to dive deeper into how factors such as home equity and a student’s test scores might impact an award. Let’s take a quick look at these two aid factors:
Home equity impact
Many highly selective private institutions assess home equity in their financial aid formulas and how they weight it can vary significantly. The colleges that inquire about the equity in an applicant’s primary home use a secondary financial aid form called the CSS/Financial Aid PROFILE.
Some PROFILE colleges will assess the full value of a family’s home, others will limit it based on the household’s income and still others will ignore it altogether. It’s always a good idea to ask a college how it treats home equity, but not all colleges will share that information.
How a college assesses home equity can mean the difference between receiving financial aid and not qualifying at all. To get an idea of how home equity might impact aid, plug the equity figure into the calculator and run it and then leave it out and run it again.
Test scores impact
A big question that teenagers and their parents struggle with is whether students should retake the SAT and/or ACT. Net price calculators can help with that decision. Use real and hypothetical test score results with the calculator and see if they would impact potential awards.
Playing “what if” games with a net price calculator helps you understand how the financial aid package might change if your income, assets and the student’s academic performance changes.
6. How to easily locate the calculators.
It can be difficult finding net price calculators on college websites. A quick way to locate this tool is to Google the name of the college and net price calculator. You can also search for a college’s net price calculator at the U.S. Department of Education’s Net Price Calculator Center.
7. Ask about the accuracy of a college’s net price calculator.
The net price that a calculator produces is an estimate, not a guarantee. It makes sense to ask a college how accurate its calculator is. Fordham University, for instance, says on its website that “for 84\% of students, the estimated net price is within $5,000 of the actual net price.”
8. Provide solid figures.
The net prices that you generate will only be as reliable as the financial and academic data that you share with these tools. Be sure to include accurate figures. If you are puzzled by results, try running the net price calculator again with more accurate figures.
Lynn O’Shaughnessy is a best-selling author, speaker and journalist. Her book, The College Solution: A Guide for Everyone Looking for the Right School at the Right Price, is available on Amazon.com.