How to Calculate the Real Cost of College

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Amid rising tuition and shrinking state funding, high schoolers and their parents can at least get a little more clarity now as they try to figure out which colleges they can afford to attend. Beginning Oct. 29, more than 7,000 schools nationwide will be required to post on their websites a net-price calculator to help families determine how much financial aid they will likely receive and how much they’ll have to pay out of pocket.

Warning: The estimates may cause heart palpitations. Some schools with enormous sticker prices (think $50,000 or higher per year) may have generous aid policies that make them cheaper than more moderately priced schools that have smaller endowments.

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The calculators, which are mandated by the Higher Education Opportunity Act of 2008, come up with net prices for individuals by taking the estimated costs — including tuition, fees, housing, books, transportation and other expenses — and subtracting the estimated aid a particular student is likely to receive, based on financial need and academic achievement. This aid comes in the form of scholarships from the school and grants (i.e., free money) from the federal government. After the net price is predicted, the calculators go a step further and detail the savings that could come from utilizing government-backed loans, which have low, fixed interest rates, and participating in a school’s work-study program.

Mark Kantrowitz, publisher of FinAid, a website that provides information to students on how to finance their education, says the calculators will give families a rough idea of what to expect. “They can tell you whether a college is within your ballpark of affordability, but you can’t distinguish between home plate and center field,” he says.

Even still, Kantrowitz says, the results shouldn’t be off by more than a few thousand dollars.

Accuracy varies in part because some schools are using the template developed by the Department of Education, which only includes nine questions, while others ask for a lot more detailed information, such as whether a family owns their home, how much they paid for it, how much it’s worth and how much they still owe on it. “The more precise the calculator, the better the results,” says Myra Smith, executive director of financial aid service at the College Board, which has created a calculator template used by about 325 schools. Smith expects most schools will utilize the DoE template in the beginning, but will eventually switch to more specialized tools to provide a more accurate, personalized estimate.

To get a better sense of the difference between sticker price (how much colleges cost) and net price (how much students actually have to pay), TIME played around with the calculators for the Indiana University at Bloomington and the Dartmouth College. Our hypothetical family consisted of a married couple in Bloomington, Ind., with two kids and an annual household income of $60,000. Our hypothetical college applicant also had solid but not stellar academic credentials, with a 3.6 G.P.A. and a 1,200 on her SATs.

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Dartmouth College, Hanover, N.H.
The total cost of attending the private Dartmouth College is much more expensive than at the public Indiana University at Bloomington, $59,783 compared to $22,150. But a large endowment means Dartmouth predicts it will offer our hypothetical student a $48,799 scholarship, lowering her net cost to just under $11,000 a year.

Indiana University at Bloomington (in-state)

No financial aid is being offered from the school. The only thing that reduced the net cost for our hypothetical applicant was a $5,500 federal student loan, leaving the family to come up with the additional $16,000 a year on their own. And, of course, any student loans the family takes out, be they federal or private, will have to be paid back one day.

Indiana University at Bloomington (out-of-state)

The estimates are much bleaker for our hypothetical student when we changed her home state from Indiana to Colorado. Tuition for out-of-state students costs about $20,000 more, bumping up the net price to north of $40,000.

So, families, does peeling back the curtain make you feel better or worse?

Updated: Oct. 31, 10:10 a.m. An earlier post listed calculations for Notre Dame University rather than Dartmouth College.

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