Updated January 2025
Maximize Your Family’s College Financial Readiness
Earning a college degree can be an expensive endeavor. Tuition and other costs have skyrocketed more than 100% over the past 30 years. Published prices (cost of attendance) for private colleges and universities can be $60,000 or more per school year. And, for in-state public institutions more than $25,000 per year.
However, don’t let the numbers scare you into thinking that taking on a huge pile of loan debt, raiding retirement accounts, or draining your home equity are the only ways to tackle paying for college.
So, how can you be more financially ready for college?
Reducing your future college costs, steering clear of overwhelming student and parent loan debts, and saving more for college are all achievable goals for your family today.
Here are 5 key concepts to help you maximize your college financial readiness:
1) Published college prices are not what most families end up paying and everyone is paying a different price.
College prices are not fixed or static numbers with everyone paying just one price.
As you might expect, college costs can vary based on factors such as school type (public vs. private) and location (urban vs. rural) and residency (in-state/out-of-state).
However, there is a higher degree of price variability – such that within each school almost everyone is paying a different price (for the same education!) And some families are paying more and some are paying less.
In today’s college landscape, tuition discounting through financial aid is a major contributing factor to what a family ends up paying for college. This is your door opener to reducing college costs.
Tuition Discounting
While college costs have been on the upward trajectory for decades, so has the practice of tuition discounting, or offering institutional price breaks.
Although financial aid is not a new concept in paying for college, since the 1990s schools have increasingly used institutional financial aid to attract a greater number of students, from across the family income spectrum.
Financial aid is not separate and apart from college admissions as it once was, but instead is intertwined with a school’s admissions decision.
According to the NACUBO annual Tuition Discounting Study, 90% of freshmen at private colleges and universities received institutional aid in 2022, as well as nearly 82% of all undergraduates, with average discounts of approximately 55% to 60% off the sticker price. Although the majority of college students in the U.S. attend public colleges with typically lower costs than private institutions, more than 50% of freshmen receive discounted tuition.
A quick history lesson: The 1992 re-authorization of the Higher Education Act brought about a change in Federal policy such that the federal government began expanding the focus of financial aid beyond need-based aid. (Need-based aid is correlated to family income.) It broadened the focus to encompass more merit-based aid to improve college affordability for middle-income and higher-income families. (Merit-based aid is not correlated to family income.)
Once this shift occurred at the federal level, the doors swung open and states and many higher education institutions followed suit. In subsequent years the high tuition/high discount pricing model took hold and remains in place for many schools.
Today, schools are the primary source of tuition discounts or student aid. The specific terminology used in financial aid offers may differ, but merit aid, scholarships, institutional grant aid, and tuition waivers, are all examples of tuition discounts.
The good news for families is that college costs can be reduced significantly and many schools are leading the way by providing more institutional aid.
However, the challenge to drive down your costs remains a work in progress since there are no guarantees that any school will easily provide you with generous amounts of institutional aid.
At a minimum though, don’t let the cost of attendance scare you away from saving more or reject potential schools based on sticker price alone.
College pricing is dynamic, and for the majority of families at the majority of schools, responsive to different variables influenced by and related to tuition discounting.
2) Look to Net Prices First So You Can Better Gauge Affordability
Since financial aid plays a significant role in college pricing, the net price gets you closer to understanding what a college may cost for one year. The calculation is:
Net Price = Cost of Attendance (COA) – Gift Aid
Gift aid represents any financial aid that does not have to be repaid including, grants, scholarships, tuition waivers, and the like.
Online calculators can help you determine net price, and all schools are required to include a net price calculator on their website.
Unfortunately, many of the calculators vary in terms of their accuracy. So, before you try to compare schools based on net price, it’s important to know what factors each school includes in their net price calculators. For example, what does a school include in its Cost of Attendance (COA)? (should I link to a description of coa? do i have one?)
Additionally, you can improve the chance of greater accuracy for some net price calculators by including more detailed inputs, such as student academic data and family financial data. Both College Navigator and The College Board offer helpful net price calculators.
For families who are early in the college search process, developing a more personalized net price can help you find and compare schools that may be a better financial fit for your situation.
An important caveat; double check to make sure a school’s net price calculator does not include student or parent loans in their net price calculation.
If a net price looks like it was calculated this way, COA – gift aid – student loans, where student loans are subtracted from the cost of attendance, it is problematic. That is because the net price may look lower if loans are used in the calculation, and you may think a school costs less, which is not true.
Student/parent loans do not lower your college costs and a misleading net price calculator does not help you know what a school really costs. You want to truly understand your potential out-of-pocket costs first, so you can decide if that is an affordable direction for your family.
3) Focus on Value
Broaden your college search beyond just a popular name or college ranking list. Factors such as popularity and location can cost more without necessarily providing greater value or return on your investment. Additional search criteria should include:
Academics
Know more about the department for the student’s anticipated major. No school is a top-tier choice in all departments or majors. Look for what kind of student support systems are in place, like mentors and professors who are highly engaged with students, and other staff that have gone above and beyond in helping students find their way.
Campus Life
Learn more about what life on campus is like both inside and outside of the classroom. Find out about the type of work experiences and internships that may be available, as well as student involvement in extracurricular activities or clubs and the overall campus community. These attributes are key drivers of student engagement and success.
Financial Fit
Consider lower-priced schools. Also, consider more expensive schools that are more generous with merit-based aid, including schools that do not rely on student loans as a significant component in their financial aid packages.
Additionally, know how well schools are doing in graduating students on time by researching the four-year graduation rates and first-year student retention rates. Taking longer to graduate or transferring schools will significantly increase your out-of-pocket college costs.
Return on Investment
How well a school does in preparing students for post-college life should not be a mystery. Consider job placement rates and salary, and graduate school placement rates as metrics of success for school value. School websites can be a good starting point; search terms include school name + student outcomes or undergraduate outcomes, for example, and you may find reports published by the schools.
4) Know How Financial Aid Works
The world of financial aid can feel confusing and many families may shy away from talking about it or even applying for aid. Don’t be one of those families!
Except for the Ivy League and a few elite schools, the majority of schools face intense competition to attract new students, with many schools not able to fill their freshman classes.
Schools are using financial aid as a tool in their enrollment management process to help attract and retain more students. College is a buyer’s market for most families.
Remember, however, that schools are also businesses; their institutional goals include attracting more students but also attracting more families that are willing to pay full price.
Financial aid offers therefore can be viewed as levers in the admissions process; you may be offered more or less based on several factors, including but not limited to, your expressed interest, student academic achievements or special talents, residency status, and perhaps most importantly your willingness to pay more or less.
And, schools are using algorithms and data points to know more about prospective students and families, which in turn helps inform their admissions decisions and financial aid offers.
You need to do just as much information gathering on prospective schools to ensure you maximize financial aid and reduce your out-of-pocket college costs.
Maximizing Financial Aid Opportunities
Your family’s ability to maximize financial aid starts long before the college application season.
Student preparation through academic achievements and other skills and talents can help them stand out in the admissions process and potentially attract more financial aid. Don’t wait until senior year of high school to focus on this.
Additionally parents, getting your household finances in order can play a crucial role as well.
Familiarize yourself with the Student Aid Index (SAI) and the income and assets that do or do not impact it. Your SAI is the starting point for personalizing the financial aid process.
Financial aid is not a one-size fits all. And since the majority of students are receiving some form of aid, don’t be deterred from learning more or applying for aid because you think your income is too high, or because you think merit awards are only for the smartest students.
Although financial aid can seem like a huge hurdle to jump, it is more important now than ever before to be well-informed and prepared to take action.
5) Save More
Tackling college funding requires the corralling of many resources. Even with merit-based or need-based financial aid, you may still face a significant shortfall in covering your costs.
To help combat this challenge, give yourself the gift of saving money for college. There are several reasons to do so, early and often, including:
It’s cheaper to save than to borrow; student/parent loans incur interest and servicing fees, which increase your total borrowing costs
The longer you save, the more potential for account growth through compound interest and investment growth
Tax benefits are available when using certain college savings plans and can help your money go further
Enjoy greater peace of mind by avoiding excessive debt
The best time to start saving is now, regardless of how much you start with. Once you start down the path of saving, continue setting money aside for as long as you can and make adjustments as you go. Need help figuring out how much to save- check out this. (change this link?)
Fortunately, there are savings vehicles that can help ease the burden of saving more for college. One such vehicle is the 529 college savings plan.
529 college savings plans are sponsored by states, and authorized by Section 529 of the Internal Revenue Code. By saving for college with the help of a 529 plan, earnings within the plan can grow tax-deferred, and when it’s time to use the funds they are tax-free if used to pay for qualified education expenses.
The plans also offer flexibility in terms of contribution amounts, who’s eligible to contribute, and there is minimal impact on financial aid eligibility as a parental asset. Even better, now there is no financial aid impact when 529 plans are held by grandparents or others, for the benefit of your student.
To give your savings a boost, make it easier for family and friends to contribute directly to your 529 plan through online gifting platforms.
The Bottom Line
College costs have soared over the past few decades, due in part to a lack of full transparency in the college pricing landscape.
The lack of clarity has led many families to overpay for college and incur burdensome debt. However, following this framework for college financial readiness can help you avoid the same fate.
Exploring the dynamics of college pricing, seeking value, maximizing financial aid, and saving early and often, are important strategies to help your family be financially ready for college.
LESS STRESS AND MORE SUCCESS…
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