Net Price: The Real Story - COLLEGEdata - Pay Your Way

Net Price: The Real Story

Want to know what a college will really cost you? Here's a hint. It's probably not the college's cost minus your financial aid. Find out how to figure what you might actually pay.

In searching for the ideal college, a big factor for most families is bound to be cost. But even with a financial aid offer in hand, it can be difficult to figure out just what that cost is. Here's a simple roadmap for arriving at the truth.

Step One: What They Say You Should Pay

Based on your Free Application for Federal Student Aid (FAFSA), Uncle Sam figures out what you and your family should pay for the upcoming year of college. This amount is called your Expected Family Contribution (EFC).

In the meantime, each college comes up with its cost of attendance (COA), an estimate of what it will cost, on average, for a student to attend that college for one academic year. The COA includes tuition, fees, housing, meals, books, supplies, local transportation, and miscellaneous personal expenses. The college subtracts your EFC from its COA to calculate your financial need. Here's what that calculation looks like:

Your Financial Need = COA minus EFC

Step Two: What You Actually Have to Pay

Most financial aid awards are made up of a combination of "gift aid" (scholarships and grants) and "self help aid" (loans and work-study). Gift aid reduces your college cost, dollar for dollar. Self-help aid does not reduce your college cost. You either have to pay back the money or you have to work for it.

Further, many colleges simply don't have enough financial resources to fully meet the need of every student. So, your true out-of-pocket cost, or your "net price," comes from three sources: your EFC, your self-help aid, and your unmet financial need. In other words, you pay for all college costs not covered by gift aid. Here's what that calculation looks like:

Net Price = EFC + Self-Help Aid + Unmet Financial Need

Using Net Price to Compare Awards from Similarly Priced Colleges

Suppose you get a financial aid award from one college and a lower award from another school that has about the same COA. It's possible that the higher award actually costs you more.

Here's how it works. Let's say the COA for an academic year at two different public colleges is $15,000. Your EFC has been calculated as $2,000, so your financial need is $13,000. College A offers you a total award of $8,000. College B offers only $7,000. It seems like College A offers the better deal, but look at how the aid package breaks down:

Which college is the better deal?
  COA EFC Self-Help Aid Gift Aid Unmet Need Net Price
College A $15,000 $2,000 $4,000 $4,000 $5,000 $11,000
College B $15,000 $2,000 $2,000 $5,000 $6,000 $10,000

College A gives you only $4,000 in gift aid. College B gives you $5,000 in gift aid. That means your net price at College B would be $1,000 lower than at College A.

Using Net Price to Compare Awards from Differently Priced Colleges

Now let's say your EFC has been calculated as $2,000 and that the COA at College C, a public college, is $15,000. But the COA at College D, a private college, is $30,000. College C offers you a total award of $9,000. College D offers you a total award of $24,000. Yet, both colleges could have the same net price:

Which college is the better deal?
  COA EFC Self-Help Aid Gift Aid Unmet Need Net Price
College C $15,000 $2,000 $4,000 $5,000 $4,000 $10,000
College D $30,000 $2,000 $4,000 $20,000 $4,000 $10,000

If the gift aid from College D was above $20,000, College D's award would be more attractive than College C's. Believe it or not, this scenario is not uncommon, especially at private colleges with generous endowments. But if College D's award included more self-help aid and less gift aid, College C's package would be the better deal.

How to Estimate Your Net Price

It's not easy for most people to figure out net price on their own. CollegeData has two tools that do the math for you. Our Net Price Calculator estimates your net price to attend any college in a matter of seconds based on your financial aid eligibility, the college's COA, and recent financial aid awards at the college. If you already know your EFC, you can enter it directly into the Net Price Calculator, or you can use our EFC Calculator to calculate it.

Why Net Price Is Going Up

According to the College Board, the proportion of financial aid made up of loans has risen sharply, thus raising the net price. This is mostly due to the drying up of gift aid resources and a steady rise in tuition (outpacing inflation). There are other factors:

  • Colleges are expanding services and options to compete with other colleges.
  • More students are attending college, but the amount of aid available has not increased at the same pace.
  • The economic downturn has significantly reduced the size of college endowments. Also affected is the amount of state funding available to support public colleges.
  • Federal Stafford loan limits have increased, which means that financial aid packages can now contain higher amounts of loan money.

How Important Is Net Price in Your College Decision?

No matter what your financial aid packages look like on the surface, it pays to dig deeper and make sure you clearly understand how one award compares to another. Yet, net price should be only one of the factors you consider when selecting a college. A college with a higher net price may still be the right college for you if it's a better fit in other important ways.

Note: Financial information provided on this site is of a general nature and may not apply to your situation. Contact a financial or tax advisor before acting on such information.

Free Newsletters

On the road to college? Make it easier with timely tips and expert advice - free. Find out more.

Sign up today!