The True Cost of College

Susan Kelly

Jun 17, 2022

The federal government must have each of the U.S. colleges and universities release their cost of attendance (COA). The COA includes fees and tuition, including accommodation and meals, books and equipment, transportation, and personal expenses. If you have a list of schools, you're considering, Knowing their COAs will provide insight into how their expenses are comparable. However, it's important to understand that the costs of attending are similar to the retail price suggested for the product, which is usually offered at a reduced price or similar to the price sticker for a brand-new vehicle. In reality, the majority of students and parents pay much less.

What's more important to be aware of is the school's net price after including any scholarships or grants the student might be qualified for. Even though student loans are described as "financial aid," unlike the grants and scholarships, which are not, they must eventually be repaid with interest. While they may reduce your costs, the student loan will make it more expensive over time.

The College Board's "Trends in College Pricing" report reveals the shocking gap between the number of tuition colleges advertise as their fees and what they cost. In the 2019-2020 school year, for instance, the typical "published" tuition, fees, as well as rooms and boards for four-year private and public colleges were as follows:

  • Public four-year (in-state): $21,950
  • Private nonprofit four-year: $49,870

But the average net price after accounting for grants and tax benefits looks like this:

  • Public four-year (in-state): $15,380
  • Private nonprofit four-year: $27,370

Figuring Your Own Cost

The price you pay will depend heavily on your family's income. When applying for colleges, you'll need to complete your U.S. Department of Education's FREE Application to Federal Student Aid (FAFSA). The FAFSA will establish your eligibility for federal financial aid and apply for it. If you're not at that stage, the department offers an online tool called the FAFSA4caster, which you can use to find out the federal aid you can expect to receive.

If you're qualified for federal aid and the Department's College Scorecard provides average annual cost information for certain institutions and colleges based on the school's COA, minus the average grant and scholarships offered to Federal financial aid applicants. If you're not qualified for federal aid, then your total cost will be lower than the COA of the school.

Even if you do not receive Federal aid, it's possible that you might not be required to pay for the entire, publicly-published cost. Another significant cost factor is the institution itself. In the classic example of demand and supply, colleges that can reject many applicants are less likely to reduce their tuition rates than schools that struggle with keeping their lecture rooms full.

Other Cost Considerations

There are a variety of reasons that could reduce the cost of college. Employers may cover a portion of the costs through employee benefits. Students could be awarded any scholarship, whether athletic or otherwise. It is also possible for them to work from home, reducing room and board expenses. However, other factors can make the cost more expensive, particularly when the student has to take longer than four years before they complete their degree, as most students today. If you can predict that one of these events will occur, increase or decrease your budget estimates according to the circumstances.

Once you have an idea of how much college is most likely to run, this is your goal for saving. If it's not feasible to save the whole amount--and for many, this is true, with the numerous demands placed on our budgets--you could make a plan to save some of it. The higher the amount you can pay, the less money you'll need to take out and pay back.

What if You Save too Much?

Since 529 funds are only available to cover qualified educational expenses, you may wonder what would be the outcome if you didn't have the money or even any of it to cover the expenses. Imagine that a student gets free tuition, pays no tuition, or decides to go to college.

Saving too much money for college is a challenge that not many families confront. If it does happen, there are solutions to address it. One of them is that the person who owns the account may change the beneficiary to another qualified family member, like siblings, nieces or grandchild, or even the person who created the account. Furthermore, under the SECURE Act, passed and promulgated in December of 2019, an account holder can avail of a lifetime limit of $10,000 from their 529 accounts to pay for student debt.

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