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By Rajkamal Rao
Understanding College Costs and Who Pays Them
May 1 is the national deadline for students to accept college admission offers and lock in their seats. Many families struggle with how to balance multiple offers, and the challenge generally centers on the Cost of Attendance (COA).
In the United States, the COA is shared among several parties:
the family
the student
the university or college through institutional aid
the state government (for public institutions)
the federal government through the Department of Education
private organizations that award merit scholarships, including National Merit programs
The degree to which each party contributes determines the family’s final cost.
For example, the UT Me Scholarships for low‑income families illustrate how federal, state, and institutional funds combine to reduce the burden on families.
Merit Scholarships
True external merit scholarships are rare, typically modest, and often one‑time awards. The major exception is the National Merit Scholarship Competition, whose Finalist awards are highly deterministic and can be substantial. You meet the Selection Index Score (SIS) cutoff to become a Semifinalist, and 94% of Semifinalists advance to Finalist status. As a Finalist, if you choose a slightly lower‑tier institution (such as Texas Tech), the resulting merit package can fully cover tuition, room, and board for all four years.
For general scholarship searches, use the Sallie Mae scholarship search tool, which includes a filter for merit‑based awards.
Students pursuing in‑demand fields aligned with national priorities often find additional opportunities. President Bill Clinton’s directive to strengthen the cyber capabilities of critical infrastructure led to the creation of the CyberCorps program, which funds undergraduates up to $75,000 for three years.
Other examples include:
U.S. Department of Agriculture scholarships for Doctor of Veterinary Medicine students
Full‑ride scholarships at U.S. military academies (with a service commitment)
ROTC scholarships offering comparable benefits
Need‑Based Scholarships
Nearly all financial awards in the U.S. are need‑based. Determining financial need is complex. It is assessed through the FAFSA (Free Application for Federal Student Aid) and the CSS Profile, run by the College Board. Filing the FAFSA is highly recommended. Review this step‑by‑step FAFSA filing video. Ron Lieber’s Nov. 23, 2024 New York Times article is an excellent explainer of the 2024 FAFSA changes.
FAFSA vs. CSS Profile
FAFSA is the gateway to federal need-based funds.
CSS Profile is the gateway to institutional funds (private college endowments and grants).
CSS is more detailed and more invasive than FAFSA.
Public universities (e.g., UT Austin, Texas A&M) require FAFSA. About 400 private colleges require both FAFSA and CSS. Both systems use complex algorithms that consider parental age, income, savings, debt, household size, number of college students, assets, alimony, and more.
The primary data source is the family’s prior‑prior year tax return. For example, a student entering college in 2026 must use 2024 tax data. Providing false information to secure more aid violates federal and state law.
Need-blind and Need-aware Colleges
Most colleges are need‑aware. They consider your ability to pay during the admissions decision. In addition to your Common App, grades, essays, recommendations, extracurriculars, and test scores, they review your FAFSA and CSS to understand your financial situation.Some private colleges say that they are "need-blind." These colleges will not consider your FAFSA and CSS applications at the time of making an admissions decision. That is, the financial aid process happens after the school has made a decision to admit you. Your financial need wasn't a factor in the admissions decision. It is only then that they may make a financial aid award - generally a combination of grants, scholarships, or loans.
Brown University explains the distinction clearly:
Need‑aware: financial need is considered during admission.
Need‑blind: ability to pay does not affect admission.
Federal law reinforces this distinction. Section 568 of the Higher Education Act states that a college is not considered need‑blind simply because it helps students with financial need.
Wikipedia maintains a good list of need-blind and need-aware schools.
When Need‑Blind Colleges Behave Like Need‑Aware Colleges
Some institutions have crossed the line. A 2022 lawsuit alleged that 16 elite schools—including the University of Pennsylvania and Vanderbilt—considered financial need for wait‑listed applicants despite claiming to be need‑blind. In January 2024, these schools agreed to pay $104 million to settle the lawsuit.
The bottom line: Need‑blind colleges must not consider a student’s financial ability at any point in the admissions decision.
Colleges That Meet Full Demonstrated Need
Some need‑blind colleges (e.g., Stanford, Yale, Harvard, Rice) promise to meet 100% of demonstrated financial need after admitting a student based solely on merit. They cover the difference between your Expected Family Contribution (EFC) and the sticker price through grants, scholarships, and work‑study. Loans, if included, are minimal. [The EFC is now called the Student Aid Index (SAI) and is calculated by FAFSA].
These colleges often follow the $65,000 / $125,000 / $200,000 rule:
Income ≤ $65,000: tuition, room, and board are fully covered.
Income $65,000–$125,000: tuition is covered; family pays room and board.
Income $125,000–$200,000: tuition is prorated; room and board remain the family’s responsibility.
Financial aid engines assume proportional assets. Lower‑income families have lower asset multiples; higher‑income families have higher multiples. More assets = less need = less aid.
The Federal Student Aid Estimator uses an asset factor of about 0.53. If your income is $100,000, it assumes $53,000 in assets.
Low‑income students should strongly consider applying through QuestBridge, which covers application fees and summer program costs at top‑40 schools. These students should focus on private need‑blind colleges rather than public universities, provided they can win admission.
The College Pricing Ladder
The Cost of Attendance (COA) is the top line, but like car shopping, almost no one pays the sticker price.
Your family’s cost depends on FAFSA and CSS determinations of financial need. The Student Aid Index (SAI) is calculated by FAFSA. It is non‑negotiable unless family circumstances change. It functions like an insurance deductible: the minimum the family must pay.
Federal grants and institutional awards reduce the sticker price. These are “free money” and do not need to be repaid. Full‑ride awards eliminate tuition entirely. Tax credits and deductions also reduce costs.
The Net Price is the sticker price minus grants and scholarships. Families are responsible for the Net Price. Net
Price estimates tend to deviate significantly from the sticker price for private colleges and universities which tend to offer tuition discounts.
The Gap is the difference between the EFC and the Net Price. Families must cover the Gap through savings or borrowing (FAFSA loans, Parent PLUS loans, or private loans). Work‑study earnings also contribute to the Gap.
In other words, families are responsible both for the EFC and the Gap.
Reciprocity Scholarships
Some out‑of‑state colleges offer powerful reciprocity scholarships that allow non‑resident students to pay in‑state tuition rates if they meet certain criteria. These programs can dramatically reduce costs and are often tied to:
Specific majors (e.g., engineering, cybersecurity, agriculture)
Regional reciprocity agreements such as WUE, MSEP, or NEBHE
Academic performance (e.g., GPA or test score thresholds)
State‑to‑state partnerships
These reciprocity scholarships can make an out‑of‑state public university as affordable as a student’s home‑state flagship. For some students who have interests in specific majors, it may be more affordable to consider out‑of‑state colleges that offer these in‑state tuition benefits or regional exchange programs.
Some relatively less well‑off states use generous incentives to attract out‑of‑state students. Oklahoma’s public universities, for example, allow non‑resident students to establish residency after just one year by meeting basic requirements such as obtaining an Oklahoma driver’s license and then qualify for in‑state tuition rates.
Texas students entering the University of Arkansas as freshmen with a 3.20 or higher cumulative GPA on a 4.0 scale automatically qualify for the Arkansan Non‑Resident Tuition Award (NRTA). The NRTA covers most of the difference between out‑of‑state and in‑state tuition and is granted without a separate scholarship application to eligible degree‑seeking students.
Use a Mortgage Calculator to Analyze Student Loan Offers
To estimate monthly loan payments, use a mortgage calculator with the loan amount, interest rate (e.g., 5.30%), loan term (e.g., 120 months), and number of payments in the first year.
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| Glossary of Terms, Image Courtesy: The University of Texas, Dallas |
Our takeaway
Take a minute to study the example graphic above of a college with a sticker price of $75,000. This is today the average published cost of attendance at most Ivy League and world-class institutions. Notice how various pricing components kick in above the family's EFC. A $40,000 - $50,000 EFC determination is normal for a U.S. household with two children with both parents working in professional jobs. Remember that families must pay at least the EFC amount, no questions asked.A Note About Rao Advisors Premium Services
Our promise is to empower you with high-quality, ethical, and free advice via this website. But parents and students often ask us if they can engage with us for individual counseling sessions.
Individual counseling is part of the Premium Offering of Rao Advisors and involves a fee. Please contact us for more information.
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