Personal Finance

Wells College, Aurora NY.

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When Jonathan Gibralter became president of Wells College in Aurora, New York, in 2015, enrollment at the school was at a nadir. To understand why, faculty there compared the college’s price tag with other schools in the area.

“What we found is that our tuition was $10,000 out of line with similar colleges,” Gibralter said. “Some students weren’t even looking at us.”

As a result, next year tuition at Wells College will be cut by 25%. Families have noticed. “The number of applications this year has gone up,” Gibralter said.

The cost of attending college has exploded over the last few decades. More than 40% of private colleges reported a decline in freshmen enrollment between 2015 and 2018, with the majority of the schools citing “price sensitivity” among families as the culprit, a recent study by the National Association of College and University Business Officers found.

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Recognizing their price has turned many families away, a record number of schools are “re-setting” their tuition. Between 2012 and 2018, an average of 10 schools a year reduced their tuition, compared with an average of one college a year from 1987 to 2011, according to an analysis by Mark Kantrowitz, the publisher of SavingforCollege.com.

Tuition at St. John’s College, with campuses in New Mexico and Maryland, will be down by a third next year. Tuition will be reduced by 57% at the University of the Cumberlands in Williamsburg, Kentucky.

Unfortunately, families don’t usually feel much relief from these reductions.

That’s because when colleges lower their tuition, they tend to also scale back their financial aid packages. The net cost to a family doesn’t change much, if at all.

Kantrowitz provided an example: Suppose a college costs $50,000 a year, but gives every student a $20,000 grant. The net price to the family is $30,000 a year. If the school slashes tuition by $20,000, but then eliminates the grant program, families are still paying that $30,000 a year.

In other words: After a tuition reset, the price a school advertises just tends to more accurately reflect what a family will actually pay whereas there is typically a wide gulf between sticker and net price.

The uptick in resets is a reminder to families, Kantrowitz said, “to always look at the net price, not the sticker price.”

Students and parents tend to focus on the former, when it’s the latter that takes into account a family’s finances and determines what the school will actually cost them after awarded scholarships and grants.

Every family should fill out the Free Application for Federal Student Aid (FAFSA). The average FAFSA applicant in the 2015-2016 academic year received around $8,500 in federal aid.

Most colleges include a net price calculator on their website, Kantrowitz said, and parents and students should plug in their information to evaluate whether the college is “inside or outside the ballpark of affordability.”

With college costs climbing, it can be hard to tell what’s affordable. Kantrowitz recommends dividing the net price for one year at the college by your family’s total income, which is the sum of your adjusted gross income and untaxed income. “If this ratio is less than 25%, the college is affordable,” Kantrowitz said.

The Institute for College Access and Success has a list of tips for navigating the financial aid process. And the Consumer Financial Protection Bureau allows you to compare different colleges’ financial aid packages.

Before students turn to loans, they should exhaust grants and scholarships, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors. Around 8% of undergraduate students had a scholarship in the 2015-2016 academic year, up from 3% in 1989-1990. There’s a great list of ways to find these awards on the SavingForCollege.com website.

Students shouldn’t borrow more than they expect to earn in their first year of employment, Kantrowitz said. “Borrowers should assume the lower end of the income range,” he added. “That way, they are less likely to over-borrow for their field of study.”

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