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WEEKEND INVESTORMarch 22, 2013, 6:21 p.m. ET
Making Sense of College Aid
By RUTH SIMON and ROB BARRY
Sandy Huffaker for The Wall Street Journal
Cole Schenewerk has a tough choice ahead of him.
The high-school senior from El Cajon, Calif., already has gotten an
acceptance packet from Southern Methodist University and a preliminary
scholarship offer from an Ivy League college. And he is still waiting
to hear from seven other schools, which he expects will dangle a
variety of financial-aid offers.
"Definitely, finances are a big deal," says Mr. Schenewerk, a coin
collector who plans to work part-time in college while studying
business. "A lot of these schools have really high sticker prices. If
I don't get the scholarships I need, I won't be able to go there."
How Do Schools Stack Up?
The financial return on a college education depends on a complex
calculation involving cost and the potential payoff. This tool will
help you determine both.
Many high-school seniors are in a similar situation. They have taken
their SATs, written admissions essays and sent in their applications.
Now the acceptances and financial-aid offers are rolling in. The
pressure is on to figure out which college might produce the biggest
return on investment.
But getting to the bottom line can be a dizzying exercise. Colleges
aren't required to use uniform language to describe their
financial-aid packages. Only about 700 of the nation's roughly 6,000
colleges have adopted the U.S. Department of Education's "Financial
Aid Shopping Sheet," which provides a standard format for evaluating
costs and performance. (It is on the web at
collegecost.ed.gov/shopping_sheet.pdf.)
Some schools don't even mention costs in their financial-aid award
letters, while other schools cite only tuition and fees, ignoring
transportation, textbooks and living expenses. Many colleges describe
loans as "financial aid" or obscure the fact that the aid package
includes federal loans to be taken out by parents.
What's more, some schools are generous with grants and scholarships
for freshmen, but are less so for upperclassmen. And most schools
leave it up to families to guess how much costs will go up each year.
Choosing a college involves a complex mix of variables, including
course offerings, geography and overall fit. But purely in financial
terms, families can make smarter decisions by zooming in on factors
such as net price after aid, graduation rate, job placement rates and
how much you might have to borrow.
"When you are looking at your final options, you want to set aside,
for the time being, the emotional content and analyze things
rationally," says Anne Sturtevant, executive director of higher
education at the College Board, provider of the SAT and Advanced
Placement Program.
The consequences for making a bad choice can be enormous, given the
rising costs. The average student who borrows has piled up nearly
$29,000 in student loans by graduation, or more than $37,000 if you
include loans taken out by parents, estimates Mark Kantrowitz,
publisher of FinAid.org, a financial-aid resource site.
Here is a step-by-step guide to making the best possible college
choice in financial terms, anyway. (For an interactive tool that can
help you compare your various financial-aid awards and see how schools
stack up based on graduates' salaries, debt and other measures, go to
graphics.wsj.com/college-costs. And in order to report any confusing
award letters, send an email to: priceofadmission_at_wsj.com.)
Calculate net cost. First, total up tuition, room and board for all
of the colleges on the student's list.
To calculate the full cost, add in other expenses. Students at
four-year colleges spend an average of $1,210 a year on books and
$1,060 on transportation, according to the College Board. Other extras
to watch out for include materials and lab fees, parking and health
insurance, though schools sometimes will let you opt out of health
coverage if your child is covered by your insurance plan.
If some costs aren't clear, families should check the college's
website or ask the admissions office.
The next step is to subtract for each school any grants and
scholarship offers from the total cost. That will provide a so-called
net price, including any borrowing, for each school.
Chris Noah, an advertising executive who lives in Middletown, N.J.,
ruled out several schools that accepted his son, Derek, because the
net price wasn't competitive. Derek, now a high-school senior, plans
to attend Allegheny College in Meadville, Pa., and major in
environmental studies.
A $15,000 merit scholarship made it "much more doable," Mr. Noah says.
Estimate the cost over four years or longer. Many families overlook
rising costs after a student enrolls. The average sticker price of
tuition and fees at private, nonprofit colleges has jumped 13% since
the 2007-08 academic year, even after accounting for inflation, and by
27% at public four-year schools, according to the College Board.
Some schools are trying to rein in cost increases or even freeze
tuition but past price increases can provide a general estimate of
what you can expect, says Brian Zucker, a consultant who works with
colleges on pricing strategies.
To be safe, families should calculate costs over four and five years,
because many students take more than four years to graduate. Just 53%
of students at nonprofit private schools and 31% at public colleges
graduate in four years, according to the Department of Education.
If you can barely manage in the first year, "you should be very
cautious about accepting," advises Bonnie Kerrigan Snyder, a college
consultant in Lancaster, Pa. At many schools, freshmen receive more of
their aid in the form of grants than seniors, she notes.
All told, about 50% of colleges front-load grants, meaning freshmen
receive more of their aid as grants than seniors do, Mr. Kantrowitz
says.
Scrutinize the fine print on merit awards. Many schools offer
generous "merit aid" to high-achieving students in an effort to meet
enrollment goals and boost college rankings. But most offers aren't
adjusted for inflation. Some are good for only a single year or
require that the student meet other requirements.
Families should ask colleges what happens to the award if costs
increase and whether there are any conditions for renewal.
Another question to ask: What happens to the aid package if the
student receives outside scholarships? Colleges typically reduce
financial-aid packages proportionately for students who win outside
scholarships, but they can do it by cutting loans, grants or both.
Balance prestige and cost. Some students, like Chandler Walsh, a
senior in Berlin, Mass., are confronting a choice between a cheaper
school and one with a better reputation. "I could go to some schools
and not have to worry about money, and some schools where I would
worry a lot," she says.
Dean Skarlis, president of the College Advisor of New York, which
works with families on college admissions and aid, advises families
facing this dilemma to weigh costs over four years. "Is this place
$22,000 times four better?" he asks. "It forces them to clarify why
one school is better than the other."
Mr. Kantrowitz recommends selecting the better-regarded school if the
difference in net price is $1,000 or less. If the gap is more than
$5,000, "go with the cheaper school," he says. Students who borrow
heavily are less likely to attend graduate school, might be under
pressure to choose a job that pays better over one for which they are
better suited and are more likely to struggle to repay their college
debt, he says.
Manage borrowing. As a rule of thumb, total student debt at
graduation including parent loans the student is expected to
repay shouldn't exceed the student's annual starting salary at
graduation, Mr. Kantrowitz says. Parents shouldn't take on more
debt for all of their children than they can afford to repay within 10
years or by retirement, whichever comes first, he adds.
Federal loans are the safest option because they contain special
protections and repayment options, including income-based repayment,
says Lauren Asher, president of the Institute for College Access and
Success, an advocacy group. Subsidized Stafford loans are particularly
attractive, partly because interest doesn't begin to accrue until the
repayment period begins.
Families planning to take out federal Parent Plus loans should apply
as soon as they can to be sure they qualify. Rejection rates have
increased since the federal government tightened lending standards for
Parent Plus loans last fall.
Beware of aid offers that include private loans "because it means you
can't borrow enough from the federal government," advises Nancy
Coolidge, associate director of student financial support for the
University of California system. Federal rules generally limit
undergraduates who are dependents to $31,000 in government-backed
loans.
Appeal inadequate aid offers. "If your financial-aid package isn't
what you expected, there is absolutely no harm in going back to the
financial-aid office and letting them know this isn't what you
expected," says Justin Draeger, president of the National Association
of Student Financial Aid Administrators.
To bolster your case, document a change in family circumstances, such
as a job loss or large medical bills, or a major expense that doesn't
show up on your financial-aid form, such as the cost of caring for an
aging parent.
Mr. Skarlis says one client nabbed a larger award by showing that a
property sale that generated a large capital gain was a one-time
event. An offer from a competing school also might work in your favor,
particularly if your child's test scores and grades are in the top 25%
for that institution, he says.
Focus on outcomes. A record 88% of last year's incoming freshmen
cited the ability to get a better job as a "very important" reason for
attending college, according to a national survey released in January
by the Higher Education Research Institute at the University of
California, Los Angeles.
For a sense of outcomes, families should look at a college's four-year
and six-year graduation rate, loan-default rate for its students,
average debt loads and the pay for recent and midcareer graduates.
Families can find this type of information on websites such as College
Navigator (nces.ed.gov/collegenavigator), the Institute for College
Access and Success's College InSight (college-insight.org) and
PayScale (payscale.com).
Families also should keep an eye out for mitigating factors. High
average debt loads are less troubling if few students borrow.
Liberal-arts graduates might have lower starting pay but earn more
over time. What's more, salary figures don't account for students who
go on to graduate school. The least-selective schools, meanwhile, are
likely to have lower graduation rates.
Some schools voluntarily provide average debt at graduation, while in
other cases, the only information available is debt at the time
borrowers enter repayment, whether or not they have graduated. That
can understate borrowing at schools with high drop out rates.
Families also should ask what the college does to help students
burnish their resumes and interviewing skills, how many students go on
to graduate school and where they study, and which employers come to
the school to recruit, says Deborah Fox, a San Diego financial planner
and founder of Fox College Funding.
Eli Castronova, a real-estate executive in Scottsdale, Ariz., says his
daughter, Naomi, now a freshman, chose Barrett, the Honors College at
Arizona State University, in part because 70% of its graduates go on
to graduate school.
"You need a graduate school specialty to excel in the workplace, and
we have finite resources," he says. Barrett is "known for helping its
students prepare for and pursue postgraduate studies."
Write to Ruth Simon at ruth.simon_at_wsj.com
A version of this article appeared March 23, 2013, on page B7 in the
U.S. edition of The Wall Street Journal, with the headline: Making
Sense of College Aid.
Received on Sun Mar 24 2013 - 22:06:57 EDT
