Paying for College: The “Sticker Price” vs. the Price You Pay
I almost spit out my drink a few years ago when I learned that the listed tuition price of my alma mater was around double what it was when I went there. How can anyone save for college when it costs that much?!?!
College prices have been rising at an alarming rate, but that's nothing new. Experts generally say that the cost of college rises about 8% every year on average. That compares to about a 3% historical average inflation rate for everything else. So if it seems like college is getting more expensive faster than anything else, it’s because it is.
Our parents and grandparents might take pleasure in explaining how they worked a part time job or served as an RA to pay for their college tuition, but those days are over. It’s hard to pay for a full year of college tuition with a full time job as a college graduate, let alone with a part time, minimum wage job.
Luckily, most people don't actually pay the "sticker" price of college.
When it comes to paying for college, there are really two categories of financial aid. Most of us are familiar with need-based financial aid based on the amount the FAFSA says families can pay, but there's another category of aid called merit aid (or gift aid).
Merit aid is used by colleges at their discretion as a way of enticing top students away from slightly better schools by offering a better price. For example, a school like Notre Dame isn’t an Ivy League school, but is still an excellent educational institution. Notre Dame would like to compete for top students that might otherwise want to go to a place like Harvard or Yale, so Notre Dame offers these top students merit aid to make going there more appealing and affordable. (This is a theoretical example. I am not making any claims about Notre Dame or their actual financial aid policies.)
Merit aid is extremely common and happens at all levels of schools. Colleges and universities want the best students they can get because it boosts their rankings. The higher the rankings, the more students who want to attend (especially those that can pay the full sticker price) and the better off the college is. There’s a place for everyone at college somewhere.
In terms of getting the most merit aid, the key is to find colleges that want you. Usually, this means having a GPA and test scores that put you in the top percentage of applicants, but it could also be because you play a sport or a particular instrument or something like that, providing the college visibility. Technically, Division III schools aren’t allowed to give athletic scholarships, but that doesn’t mean you couldn’t get additional merit aid if the school wanted you for your swimming ability enough. (Legally, DIII schools cannot say they’re doing this, but it can happen.)
It’s hard to know just how much aid a college will give each individual student. Some colleges are more forthright with this information than others. With some research, you might be able to find out how much need-based or gift aid a college typically gives. As a general rule, private colleges often give out more aid than public institutions.
You can find out more by using the U.S. Department of Education’s search tool and by going to each college’s financial aid website. Look at the average amount families pay, but keep in mind that this is an average. Many students pay more and many pay less. You’re more likely to get a better financial aid package if you are in the top 25% or so of students at the college.
It’s a good idea to strategically apply to a variety of colleges to find the best financial aid package. Of course, financial aid isn’t the only criteria you will use to evaluate schools, but it’s something everyone should consider to avoid graduating with crippling student loans. More of us would do well to think about financial aid from the beginning rather than applying and hoping it all works out if you’re accepted.
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