How useful is the Net Price Estimator?

Image Credit: Rao Advisors LLC

By Rajkamal Rao


If you reviewed our post on the College Pricing Ladder, the above graphic should be familiar to you. It shows that Net Price is the amount that a student pays to attend an institution in a single academic year AFTER subtracting scholarships and grants the student receives. [Scholarships and grants are forms of financial aid that a student does not have to pay back]. This is the U.S. Department of Education's official definition of Net Price. We throw in tax credits and deductions because these too are amounts that you're entitled to, and you do not have to pay back.

Just like buyers of cars never really pay sticker price and are able to negotiate a lower price before driving them out of a dealer’s lot, most families rarely pay the sticker price listed on a college website. But while buying a car at the lowest price demonstrates negotiating skills of the buyer, no negotiating skills are needed to obtain the Net Price estimate for a family.

The net price of attending college is highly tailored to an individual’s family situation and considers a variety of factors completely unrelated to the merit of the student. Nearly all undergraduate students are considered dependent upon their parents unless they answered "Yes" to any of the questions in the Free Application for Federal Student Aid (FAFSA®) checklist, run by the U.S. Department of Education.

Factors such as whether the parents are unmarried, divorced or separated; the number of children in college; the size of the household; family income, savings, value of College 529's, assets, the value of home businesses and family commitments, such as alimony and medical payments which are not covered by insurance; family debt; the age of the primary home; debt remaining on the primary home; willingness of students to work in the summer or during term, are all considered as inputs into a black-box algorithm to estimate what the college thinks is a fair Net Price for your situation. The only things that are not factored into the black-box are a family's retirement savings (401K, IRAs) and social security income.

Two students with identical academic accomplishments can therefore be offered entirely different net price estimates from the same school.  The College Board reminds us: “It is possible that your net cost will be lower at a college with a high sticker price or higher at a college with a lower sticker price. You may find that some colleges you thought were financially out of your reach may be very affordable.”

To estimate net price, visit your desired school’s website and be prepared to spend 20-30 minutes to answer many questions about your situation to get the most accurate estimate. The most elite schools, with extremely large endowments, like Harvard, Stanford, Yale, and Princeton, run their own net price calculators on their websites. Nearly 200 other schools, including Brown, Cornell, Duke, Penn, Rice, and Carnegie Mellon, use the one-stop site of the College Board’s. The advantage here is that once you enter your family's information and save it on the College Board's website, calculating the NPE for each participating college is fairly easy as you can simply jump through screens which auto-populate for each school, making minor modifications as desired.

To estimate net price, you can also use the government's Federal Student Aid Estimator, which approximates the calculation of the Student Aid Index (SAI). The SAI is an eligibility index number that a college’s or career school’s financial aid office uses to determine how much federal student aid you would receive if you attended the school. This number results from the information that you provide in your FAFSA form. Read Ron Lieber's excellent NY Times piece on Nov 23, 2024 about the latest FAFSA process. 

Remember that the cost of college attendance is collectively borne by the family, the student, the university or college, the state government (in the case of public colleges), the federal government and private entities which make merit scholarship awards, such as those associated with the National Merit Scholarship program. The degree to which each of these external parties assumes financial responsibility will determine how much the family pays.

The "Net Price" is simply the difference between the sticker price and the discounts the family has been offered. The family is ultimately responsible for the Net Price. The Net Price Estimator is therefore a number which indicates  how much your family will pay for college - through savings, loans or a student's work-study dollars.

Nearly all financial awards are need-based. External merit scholarships are extremely rare, and when given out, are rather small. Most are one-time. Determining financial need is a complex exercise and is facilitated through huge black-box websites - FAFSA® and the College Scholarship Service (CSS), run by the College Board.

While the Net Price Estimate is an excellent tool to start shortlisting colleges, remember that the only binding contract is that which is made by the college after you fill out your FAFSA and/or CSS application. This financial award information is revealed to a student along with an offer of admission and will include a full breakdown of how much the student will pay for tuition, fees, meals, and lodging.

To review a typical loan schedule so that you can estimate your monthly payments on a student loan when you know the Loan Amount, Interest Rate  (e.g., 3.73%), Loan Term in Months (e.g., 120) and the Number of Monthly Payments in the First Year (assuming you want to make more than 12 payments), use a mortgage calculator. Because of a series of Fed interest rate hikes, borrowers with federal undergraduate loans disbursed after July 1, 2022 (and before July 1, 2023) will pay 4.99 percent, up from 3.73 percent for loans disbursed the year-earlier period. (Source: NY Times).

Our takeaways

Two families are unlikely to have the same Net Price because each family's set of circumstances is likely to be different. Families often try to compare financial awards received by another child as though this is somehow representative of that child's merit. But in 99% of these cases, the difference in the Net Price is because of that other child's family situation. In the United States, merit has very little to do in determining financial awards.

Set a budget for your family and short-list schools based on Net Price Estimates. If the NPE for a desired school is within $1,000 of your budget, you may proceed to include that school. If it is greater than $5,000, you need to reassess your budget or drop the school altogether.

 

Net Price estimates tend to deviate significantly from the sticker price largely for private colleges and universities - which tend to offer tuition discounts. For public schools, the tuition sticker price is fixed by state law and falls into two categories - the discounted in-state tuition or the more expensive out-of-state tuition. For many families, in-state public colleges represent the best bargain because they are more affordable and there's always a college that will accept a student, regardless of high school performance. For some students, it may be worthwhile to consider out-of-state colleges that may offer in-state tuition benefits in that state for specific majors - generally on a reciprocity basis.

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