Calculating the net price of college
College administrators, take note:
All colleges will be required to post a "net price calculator" on their web sites by fall 2011. "Net price" is what a student actually pays to attend, after subtracting discounts and grant aid from the sticker price.
Some colleges (including some of the most selective liberal arts schools) already have posted net price calculators or "estimators," and the federal government has provided a template.
A market for off-the-shelf calculators has emerged. Two companies that bill themselves as the top providers -- StudentAid.com and Think Ahead LLC -- have merged.
They are developing a new and improved calculator. Albright College in Pennsylvania was the first to install it.
I asked Jeff Whorley, president of StudentAid.com, to do a brief Q and A on the business of calculating net price. The company contends the federal template isn't very accurate and says it can do better.
Here it is, lightly edited for space.
Q: What are the biggest misconceptions families have about the net price of college?
A: Most prospective college students and their families do not understand when they will learn their real cost, and they are often not aware that the sticker price of a college is not the price they'll pay. The two problems are interrelated. Prospective students see a sticker price early in the college planning process and don't even bother to apply to colleges that really might be affordable--if they had known in advance how much student aid they would have received to reduce the college's sticker price to their net price and up-front, out-of-pocket costs. (Net price is sticker price minus merit and need-based grants. Up-front, out-of-pocket cost is the net price minus work-study and government loans.) We worked with an outstanding Idaho senior from a lower-income family who wanted to attend Vanderbilt University. He assumed Vanderbilt was completely out of his price range, but once we calculated his real costs, Vanderbilt proved to be more affordable for him than a state university he was planning to attend.
Net price and up-front, out-of-pocket costs are generally mysteries until a prospective college student receives an acceptance and aid award letter in the spring. By that time, it's too late to plan. The point of knowing net price and out-of-pocket costs before applying to colleges is to be well-informed about which ones will best fit a student's academic goals and the family's bank account.
Q: What are the merits of your new net price calculator?
StudentAid.com's second-generation ThinkAhead Net Price Calculator™ is easy for students and parents to use. It will take as little as 15 minutes to get an accurate, personalized net price estimate.
Our technology can be customized to each institution's needs and be more than a net price calculator to help institutions improve their communication with prospective students, assist in enrollment management and improve financial aid operations. Customization for institutions includes the type of contact information, financial, and academic questions asked of students; incorporating an institution's grants and method of determining aid; and creating a student-friendly results page.
Q: The federal government has a template net price calculator for colleges to use in developing their own. Is it accurate? Several colleges already have net price calculators up on their web sites. How good are they?
A: Only a few dozen colleges and universities currently have net price calculators posted. Nearly all were developed before the mandate requirements were announced in October 2009. College-cost calculators on various college planning Web sites are often based on out-of-date or incomplete information and are not personalized to a student's financial and academic circumstances.
The federal net price calculator template understandably is a "one size fits all" approach that assumes all institutions use the same aid-awarding criteria and aid packaging techniques, which they do not. The biggest plus and biggest drawback of the federal template is that it asks only eight questions to determine a student's dependency status, expected family contribution (EFC) and price of attendance. Two key questions that determine a student's financial circumstances--family assets and income exclusions--are not asked, nor does it ask the student any merit-aid criteria questions. NPCs built on the federal template show net price, but up-front, out-of-pocket costs are not calculated, which means students won't see how work-study and loans could reduce their net price of college.
The federal NPC template provides reasonable net price estimates for institutions that don't award merit aid and enroll a majority of Pell Grant eligible students. However, many colleges and universities provide significant grants. For their prospective students, calculations by a calculator built from the federal template will often be inaccurate.
When calculations based on the federal template's extremely brief survey generate inaccurate net prices, those institutions will face the additional problem of explaining to prospective and current students the reasons for their aid estimates and aid awards being far apart.
While most institutions haven't posted net price calculators, during the past seven years some, such as MIT, Yale University, Williams College, and most recently, the University of Arkansas and Cornell University, have posted custom, accurate net price calculators by Think Ahead, LLC, which recently joined forces with StudentAid.com. StudentAid.com recently launched a second generation of calculator technology that we believe is even more reliable and user-friendly.
Q: How many colleges use your calculator?
A: Thirty colleges have implemented or are planning to implement a ThinkAhead Net Price Calculator™. Albright College in Reading, Pennsylvania is the first one to use StudentAid.com's second-generation, college-calculator technology.
Our second-generation NPC technology for post-secondary institutions is the same core algorithmic engine that powers our College Cost & Planning Report™ consumer service.
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Daniel de Vise
March 17, 2010; 4:39 PM ET
Categories: Access , Administration , Admissions , Aid , Finance , Liberal Arts , Marketing , Online , Public policy | Tags: net price, public policy, student aid
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