Financial Matters: Understanding Net Price

Families often experience sticker shock when contemplating the cost of college, but it’s the net price, rather than the sticker price, that prospective students need to consider. Each college publishes the Cost of Attendance (COA) for their institution. The COA includes room, board, tuition and fees, along with an estimate for books, personal expenses, and travel to and from campus. The COA is the sticker price.

Relatively few families actually pay the full COA for their child. Instead, various grants, loans, and work study earnings all affect the actual net price of college. Let’s look at the factors that affect the net price.

Net price depends upon a family’s financial situation as computed on the FAFSA (Free Application for Federal Student Aid), the form required by all colleges if applying for financial aid. The FAFSA will calculate an Expected Family Contribution (EFC). The actual net price, however, will be affected by the college’s financial aid policies that determine the percentage of need they will meet, and further affected by how much the college actually wants a particular student to enroll.

Need is the difference between the Cost of Attendance and Expected Family Contribution. Some colleges will meet 100% of need, while others with smaller endowments meet a lower percentage of need. When a college strongly wants to enroll a particular student (usually because of grades and test scores, or possibly because of institutional desires that might include geographic or ethnic diversity, interest in specific majors, or special skills, talents or aptitudes of the applicant), they will offer grants to make up a larger percentage of the difference between need and COA.

Your net price can be met in several ways. One component, the Expected Family Contribution (EFC), might be met through the family’s assets, college savings plans, and/or loans. A second way to meet your net price is through self-help money earned through the student’s employment, and money that a student might borrow through a federal or state loan. The third component, or GAP, is the amount of need that is unmet. GAP may be paid from family assets, income, or parental loans.

To reduce your net price, include colleges that meet a high percentage of established need and those that are generous with merit aid. Merit aid is free money provided in the form of scholarships and grants because the college is eager to enroll a particular student. Applicants are most likely to qualify for merit aid if their GPA and test scores place them in the top quarter of accepted students. Therefore, by carefully including colleges on your list that offer generous merit aid and where you will be a top applicant, you can greatly reduce the net price you will pay for education.