Just as each person on an airplane pays a different price for their ticket, students sitting in a lecture hall on a college campus may pay a different price for their education. Each student pays their own net price, which is a discounted sticker price. Knowing how the net price is calculated is crucial to understanding college pricing and what your student will pay for their college education.
Net price is the college’s annual cost of attendance minus the grants, scholarships, tuition waivers and other gift aid a student receives for one year of college. This does not factor in loans. It includes only the forms of financial aid that a student does not have to repay or earn through work.
The net price is the student’s real bottom line cost of college. It is the amount the student must pay from available resources, including savings, income and loans. Families should compare colleges based on affordability using the net price, not the sticker price or net cost.
Note that the net price reported on the college’s financial aid award letter is just for one year.
Front-Loading of Grants
The net price may change from one year to the next. The college’s cost of attendance often increases each year. About half of colleges give a better mix of grants vs. work and loans during the freshman year than during subsequent years, a phenomenon known as front-loading of grants. Even if the grants do not decrease, the net price will increase due to increases in the sticker price.
Some colleges may front-load grants to attract students with a comparatively low net price during the first year. This leaves students paying much higher net prices for the sophomore through senior years, though. It is a form of bait and switch.
To determine whether a college front-loads its grants, visit the College Navigator web site at collegenavigator.gov. The College Navigator web site provides two sets of “Grant or scholarship aid” figures in the financial aid tab, one for first-time, full-time undergraduate students (freshmen) and one for all undergraduate students. If the percentage receiving grants or the average grant is much lower for all undergraduate students than for freshmen, it may be a sign that the college practices front-loading of grants.
Only one college, the University of Dayton, guarantees that students will pay the same net price all four years. The University of Dayton provides a net price lock to help families plan for paying for an entire degree. This reduces drop-out rates, the need for unexpected borrowing and the average time to degree completion.
Scholarship displacement can also affect the net price.
When a student wins a private scholarship, it should reduce the net price. But, some colleges reduce their own grants by the amount of the private scholarship the student won, yielding no change in the net price.
Even when a college claims to not practice scholarship displacement, they may take the student’s scholarship for granted when assembling a financial aid package in subsequent years. The college’s institutional grants magically decrease by the amount of private scholarships won by the student.
When a college displaces scholarships, the college is benefiting from the student’s scholarship rather than the other way around.
To determine whether a college practices scholarship displacement, look for the college’s outside scholarship policy or scholarship displacement policy.
Some colleges promote a net cost figure which differs from the net price. This can be confusing for students and their families. Be sure that you’re looking at a net price figure, not a net cost figure.
The net cost subtracts the entire financial aid package, including work and loans, from the cost of attendance, not just gift aid. But, loans must be repaid, usually with interest. Loans don’t really cut college costs. Most families will have to pay much more than the net cost for a child’s college education.
The net cost is misleading. Use of the net cost figure is like a car dealership claiming that the car is free because you can buy it with no money down.
Net Price Calculators
Every college is required by the federal government to provide a net price calculator on their website. The net price calculator gives you a personalized estimate of what you can expect to pay for the first year at the college based on what students with similar circumstances have paid in the past.
While net price calculators are useful for an estimate, that estimate can differ by thousands of dollars from what the student is actually billed. Net price calculators that ask more questions tend to be more accurate. If students skip questions, they will get a less accurate estimate. Some net price calculators use two-year-old information, while others are up-to-date, which can affect the accuracy of the net price estimates.
To get the best estimates, complete the net price calculators with your student to ensure the information they’re entering is as accurate as possible. It may take more time, but you’ll be working off of a better estimate as you compare different colleges’ net prices.