|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.
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 - the Free Application for Federal Student Aid (FAFSA®), run by the U.S. Department of Education, 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.
Our takeawaysTwo 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.
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. We are indebted and privileged to have earned their trust in matters which are so important to them. Please check out our public Google reviews to see what they say about us.
Individual counseling is part of the Premium Offering of Rao Advisors and involves a fee. Please contact us for more information.