What Will College Really Cost Me?

Excerpted from
Paying for Your Child's College Education
By Marguerite Smith

There is an enormous and crucial difference between the official cost of a college education and the cost of that college education to you. In this chapter we will explore two trends that help explain that difference: college costs that continue to rise faster than inflation, and a basic upheaval taking place in college admissions and financial aid giving. We'll show you how you can use the second to help offset the first.

By now you probably have some notion of the kind of college-two- or four-year, public or private, close to home or a continent away-for which your youngster is aiming. (Alternatively, you know the kind of place that you are dreaming of for him or her, if first grade is closer than freshman year.) And if you are considering specific institutions it's easy enough to find the posted sticker price. What's missing, though, is a sense of what it will ultimately cost you-especially if those freshman bells will be pealing some years hence.

If you think your goal will keep getting more expensive, you are, of course, right. Evidence: Money magazine's 1994 College Guide listed a mere six schools that charged more than $25,000 for one year's tuition, fees, and room and board. (The priciest then was Brandeis University at $26,130, followed by Barnard, MIT, Hampshire College, Yale, and Bard College at $25,044.) The 1996 Guide lists fully 69 institutions that exceed the $25,000 benchmark. (Sarah Lawrence tops the list, at $28,582.)

So that you can see how the trend of rising costs will play out, we've included here basic financial projections for colleges at three price levels for freshmen entering in 1996 to 2006. We also spell out the approximate monthly savings required to meet those costs, assuming they are rising about 6.5 percent a year (or, if you've just struck the lottery, the lump sum you could invest today to fund those future college years). Seeing these projected figures in black and white could give a sharp kick to your savings motivations.

Dollars for Your Scholar

The following three tables estimate the total costs of college, including tuition, room and board, fees, books, travel, and other miscellaneous costs that parents report. We assume a 7 percent after-tax growth on your savings, and that college costs will rise about 6.5 percent per year. Cost categories range from one (for in-state residents attending a state school) to three (for the Ivy league elite). Number two is the medium range for private schools.

Enough of numbing numbers. The good news is that many colleges are changing some time-hallowed admissions policies in ways that can benefit the parent who does save and the student who does study. The help comes in two ways: you might be able to get discounted tuition if you need it; if you don't require financial assistance, your child may qualify for a more competitive college than might have been possible in earlier years.

The basic reason for these changes is that there is a supply/demand imbalance. America's college-age population has declined 13.5 percent since 1975 to 14 million today. This has left hundreds of student-hungry schools more willing than ever to boost their financial aid offers by cutting deals with parents and their children. "I've heard financial aid officers refer to the weeks after the offer letters go out as 'Let's make a deal' time," says Michael McPherson, co-director of the Williams College Project on the Economics of Higher Education.

Although the trends are in your favor, don't assume you can just waltz into a college's financial aid office and demand more money. Only families that know how to negotiate shrewdly can expect to emerge with an enriched aid package. The basic hitch: You'll need something to negotiate with. And you'll need a working acquaintance with the latest college financial aid practices: preferential packaging, gapping, admit/deny policies, and that hot-button phrase, "need-blind admissions." (We'll explain these terms later in the chapter.) For the moment it's enough to know that preferential packaging is your goal, gapping and admit/deny are what to avoid, and that need-blind admissions is an endangered species. When you learn how these work, they can serve as tools to advance your cause of getting generous aid from institutions so you don't have to carry the entire formidable financial burden yourself.

If you still have qualms about the dollars required to attain your child's degree, remember that tuition isn't the only item that inflates over time. Your income will also, sometimes at rates that beat inflation. Even better, if you instill in your child the idea that knowledge adds more to the quality of life than mere cash, that can also ease your obligation. If your kid really likes learning, colleges will seek him or her out with merit aid in hand.

College Admissions: Savings vs. SATs

Start with this premise: Higher education is splitting into two camps-the haves and the have-nots. The first group includes the Ivies, Stanford, California Institute of Technology, and similar schools that can charge almost any amount and still command the cream of the student crop. "Their budgets are expanding, they're enriching their curricula, their residence halls stay spruced up," says Williams's Michael McPherson. "But hundreds of other private schools are under enormous strain. They have to emulate these models, without the same endowment resources, which compels them to charge high tuitions."

At the same time, many small private colleges and universities-even distinguished ones like Oberlin and Skidmore-are losing candidates to state-subsidized universities. Middle-class parents rebel at their relatively high prices and end up shipping off their kids to good old affordable-and often academically respectable-State U.

This middle-class flight has, in effect, changed financial aid into a form of selective price discounting at many of the second-tier liberal arts colleges and universities. This group may offer discounted tuitions (in the form of grants, though no money changes hands) to students who are unwilling to pay full freight. They may be even more generous to desirable students whose enrollments can enhance the school's reputation-the practice referred to earlier as preferential packaging. Merit-based aid-which rewards excellence over financial need-has been growing far more quickly than need-based aid in recent years, according to a study by McPherson and economist Morton Schapiro of the University of Southern California, Los Angeles.

Twenty years ago schools viewed aid money as a kind of charity operation run on the side. Now, says McPherson, "schools look at financial aid as a strategic instrument for shaping the quality of the entering class." Whatever accomplishments the college values can be rewarded, be it high SAT scores, musical talent, or the ability to ace the 100-meter dash. Example: McPhersons son Steven got a brochure from a college saying, in effect, "Look up your SAT scores in column A, then find the amount of your scholarship in column B." (Steven, now a sophomore, went elsewhere, without a merit scholarship.)

Over the years, American colleges have come to be known as need-blind, which means they admit candidates on the basis of academic and personal accomplishments, ignoring financial need as a consideration in selecting students. Many parents assume, as a corollary, that need-blind institutions also meet an applicant's full financial need, making it possible for students who are admitted to the college to actually attend the school. In fact, only a precious handful of institutions can meet full demonstrated need with reasonable aid packages. Some academicians maintain that no more than 20 schools nationwide continue a pure need-blind policy. "No one knows how to verify that figure, but everyone believes it," says Thomas C. Hayden, vice president for admissions and financial aid at Oberlin College. "The others are trying very hard to meet students' financial need, but many of them are forced to gap behind the scenes."

Gapping, a relatively new practice, occurs when an admitted student is awarded a financial aid package that meets less than his or her full demonstrated need. The school awards what it can and hopes that a rich grandparent or other source will emerge to bridge the financial gap. More draconian is admit/deny, a strategy in which all students are admitted through a need-blind process, but some portion of the admitted students who demonstrate need are denied financial aid.

According to a 1994 study by the National Association of College Admission Counselors, 65 percent of college and universities practice gapping, 54 percent use preferential packaging, and 21 percent employ admit/deny policies. Among public schools that have adopted preferential packaging, the top priority was to attract students of desirable ethnicity; academic merit ranked second. The priorities of the private schools were reversed, with academic merit leading the list.

What this means for parents like you is that thrift is likely to pay off both directly and indirectly. Money in the bank will surely help you and your child more comfortably survive those four expensive years-but it may also make the school more likely to admit your scholar.

The growing trend toward merit aid tilts the admissions see-saw toward middle- and upper-income families. Applicants most likely to benefit are the excellent students (who may get grants even if they don't need the money) and academically marginal students from families that can afford to pay the full tab. "I'm seeing a definite trend among my senior acceptances," says Todd Brown, a science teacher at Wooster, a private secondary school in Danbury, Conn. "Those who are able to pay full tuition are getting into colleges that were, in the past, out of their league academically. This has provided opportunities at my school, as there's a good deal of wealth here in Fairfield County."