It's true that college costs keep rising. But the truth of the matter is most students pay nowhere near the published price for their college education.
The numbers are enough to rattle the bank accounts of even financially comfortable families. Ivy League bastion Harvard College is charging $58,607 for the 2014-2015 academic year. That figure—which is 3.9-percent higher than the $56,407 price tag for the previous year—includes tuition, room and board, and fees. Yale announced similar cost increases—a four-percent jump to $59,800.
Elite schools aside, the sticker shock of attending college is still very real. Nationwide, the total average cost of a year at a private four-year college was $40,917 for the 2013-2014 academic year, while four-year public colleges came in at $18,391.
Published Versus Net Price
But there is more to the story than the so-called "published" costs. These eye-opening amounts are based on the full price that colleges list in their admissions documentation—and that only the wealthiest families are asked to pay. Dig deeper into the numbers and you will find the majority of college students pay nowhere near the published costs. Instead, most qualify to receive some form of financial aid that brings the total cost down to a more manageable bottom line. This dollar amount is referred to by the College Board and others in the field as the "net-price" tuition.
For instance, using Harvard as an example, a majority (nearly 60 percent) of its freshman class this fall receive needs-based financial assistance from the institution that amounts to, on average, about $12,000 per student annually. This is separate from any government aid qualifying students may receive.
Putting the net-price calculation into a broader context, after accounting for financial aid, the average student at a four-year private college paid tuition and fees of $12,460 in the 2013-2014 school year. Add to that average room and board charges of $10,830, and the estimated total net price would have been $23,290—a far cry from the published total price of $40,917.
A similar pattern emerges when comparing the published versus net cost of attending a four-year public college. For these students, financial aid and tax offsets brought their tuition and fees down to an average net cost of $3,120 for the 2013-2014 academic year, compared with the published cost of $8,893. When combined with the full charge for room and board, the total net cost for a year at a public college was $12,620—significantly less than the published rate of $18,391.
Still a Lot to Save For
For parents of future college students, this is encouraging news. But even after grants, scholarships and other financial assistance, it is still a lot of money to come up with. That’s why it is wise to start saving for your child’s college education when he or she is still quite young. There are a number of tax-advantaged savings vehicles—such as a 529 College Savings Plan or a Coverdell Education Savings Account—that permit you to make annual contributions and withdraw funds tax-free as long as they are spent on qualifying educational expenses. Work with your financial advisor to set up a savings strategy that will provide for your child’s future. iBi
Cathy S. Butler, CFP, CRPC is a financial advisor with the Butler/Luthy Group of Morgan Stanley. For more information, visit www.morganstanleyfa.com/thebutlerluthygroup.
