• Paying for college: Tuition Discounting

    One of the largest purchases I’ll make in my life is buying college educations for my children. So, I’m paying close attention to how I save, and how much I need to save, for that expense. Last year and earlier this year I went pretty deep into this issue. (To benefit from my research and save yourself some time, see posts under the “saving for college” tag.)

    One thing I discussed in a prior post was that you shouldn’t expect to pay the “sticker price.” A lot of students receive grant aid. The rub is you don’t know exactly how much aid you’ll get. But we do know a lot about the average level of aid. That’s described in excruciating detail in a recent report from the College Board on tuition discounting.

    From it, we learn that average discounts are above 30% at four-year private institutions and the discount rate has grown over the past decade.

    Tuition discount rate by sector

    The report also tells us,

    Because of growth in total grant aid, net prices have risen more slowly over time than have published prices. In the public two-year and public four-year sectors, estimated average net tuition and fees in 2009-10 are lower than those in 1999-2000 after adjusting for inflation. In the private four-year sector, estimated average net tuition and fees in 2009-10 are about the same as those in 1999-2000.

    Average published tuition and fees and net tuition and fees per FTE student at private four-year institutions

    It’s very nice that there is some hope of slightly lower than astronomical tuition bills for my children. But it’s still very frustrating not to have a good sense of what those bills will be. But, as I wrote before, I couldn’t possibly save enough to fully pay private four-year tuition rates anyway. What I can do is save to meet my expected family contribution (EFC). That doesn’t change much over time unless your income and assets change.

    Of course, only being able to save for my EFC means my kids could be in for a lot of debt if they attend a school that costs a lot more than that net whatever tuition discount they receive. Maybe I can steer them toward something more affordable. Maybe not. Either way, it’s a problem for another time. I’ve got over a decade to think about it. And, believe me, between now and then I’ve got far more pressing childhood issues to consider.

    (For instance, one recent problem was how to get vomit smell out of a carpet, even after it’s been cleaned many times with the usual stuff you’d think to try. Know the answer? There are lots online, but my sister-in-law knows how to do it in seconds, and now I do too. If nobody gets it I’ll post later in the comments to this post. Lemme here your answers first. By the way, this could come in handy at college too, so it really does belong in this post.)

    • “Maybe I can steer them toward something more affordable.”

      Interesting to note the inevitable (and correct) desire to control or influence another person’s decisions when you’re picking up the tab. At some point, you’ll be called a fascist for this.

      As M. Friedman frequently noted, your children will spend your money will less consideration than you would spend it, so good luck with the “steering”.

      Good post. I was under the impression that Aid had driven up prices more than your graphs suggest.

    • Get the vomit smell out of a carpet with shaving cream. First clean up the vomit (duh!), use a carpet-safe cleanser as best you can. Then, when all is left is odor, spray it with shaving cream and wipe up. Worked for me.

    • As Phil Greenspun famously noted, college is the only economic good where they look at all your finances first, then tell you how much it costs. Strikes me as an unstable sytem going into the future and its difficult to know what you’ll be facing with your children.

      My son is a counter example to the contributor above. I explained to him that him and his sister are going to have all the money I have left when I’m dead, and his college education money is coming out of that. I also explained that my support for my kids does not have a deadline, and I would help him financially in life as he needed and I was able to..

      My son decided to live at home, go to community college, and transfer to a state university in 18 months, probably the cheapest way to get a Bachelors degree in California. Both of us, however, are worried about how he’ll make a living after college.

      • @Brian Gulino – Thanks for your thoughts and story. As for college being “the only economic good where they look at all your finances first, then tell you how much it costs,” it’s a nice line, but not strictly true. Public health care programs, both Medicare and Medicaid today are and the plans available through exchanges of 2014 and beyond will be means tested. The wealthy pay more than the poor. Less systematically, many businesses offer services on a sliding scale (this is somewhat more common in the mental health field).

        But I get your point!

    • Anecdote: Our oldest child is a freshman at college this year. He took lots of AP classes, got OK grades, did great on the ACT (33 whoohoo!) and had all those resume fillers to identify him as a top candidate. Our income is such that the EFC meant he didn’t receive any need based aid. He did, however, receive substantial merit -based aid at all the schools he was accepted to.

      The interesting part: While the aid was different between schools, it closely tracked the tuition level differences. For example, if the tuition was $30,000, the grant was $10,000. If the tuition was $55,000, the grant was for $35,000. If the tuition was $25,000, the grant was $5000. He ended up with aid from 5 schools, with tuition between $19,000 and $55,000. With aid, the prices were between $19,000 and $22,000. This includes room and board (usually about $10,000).

      It made it easier to concentrate on the school for his selection, knowing the final price was similar, even though the sticker prices were very different.)

      So, my advice: Look at the schools and don’t assume the cheapest price will actually be the lowest cost.

      Good luck!
      p.s. The whole search process left me very impressed with the fantastic quality and quantity of schools available. We live among incredible resources.