What's the True Cost of College?

I've met with some clients recently in which the theme of our meeting has centered around education planning for their kids or grandkids. Their main concern is how the cost of college continues to sky rocket. Some statistics show that college tuition is increasing at about 5% per year. That may be true but a recent article from Lynn O'Shaughnessy, a college consultant, pointed out that the true cost of college is actually about 1/2 of what the average published tuition costs that are quoted for private and public universities. Most of the price drop is attributed to grants that colleges themselves dispense to students. Federal tax credits, such as the American Opportunity Tax Credit, contributes to a small portion of the price cuts. 

A lot of people think these price cuts are only reserved for middle to low income students but the vast majority of schools routinely give scholarship money to affluent students, too! According to a recent NACUBO study, private colleges were recently awarding 41.5% of scholarship money to affluent students and 36% to students in need of financial aid. It is almost the same situation for state universities. A lot of clients ask how this could be? The major motivator for universities is that by attracting affluent students, colleges believe they have a better shot at improving their annual U.S. News & World Report college rankings. Here's why:

• Affluent students often enjoy higher grade point averages and standardized test scores, and are more likely to graduate in 4 years.
• Universities also hope that well off students will become generous donors as alumni.

All these are factors that U.S. News uses in it's ranking methodology.

Also, O'Shaughnessy points out that a student doesn't have to be an "A" student to snag scholarships or grants! In fact, some colleges give every student some sort of discount. Around 64% of full time students, either from private or state colleges, received grants. Among all private colleges, 82% of students receive grants!

Check out the College Navigator at http://nces.ed.gov/collegenavigator/. This is a federal database of higher-ed statistics. Type in the name of a school and you'll be directed to 11 categories of statistics. Click on the financial aid category and you'll see the school's average grant and a percentage of students that receive assistance. 

The price breaks institutions are offering are significant, so don't cross any schools of your student's list just because they look too pricey. 

In my next post, I will talk about the different education planning vehicles you can use to help save for college.

If you have any questions or would like more information, don't hesitate to contact me at jerryc1914@verizon.net or 714-319-7956.