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How to Choose the ‘Right’ College

April 22nd, 2013 by dfarish

We are in the closing weeks of college choice decision time: most institutions have a May 1 date for students to “accept the acceptance.” After that date, some colleges and universities will have a full class for the fall of 2013 and will return deposits postmarked May 2 or later; at many others, the choice (or even the availability) of residence halls, as well as classes, may be severely restricted. So prospective students should be prepared to make their choice of campuses by May 1.

But for many students, cost is a factor that limits choice. In short, can the student (and his or her family) afford the campus that is the student’s first choice?

It is at this point that the expectations of the campus and the student are often at odds. Based on extensive survey data, most students and their families expect to pay substantially less than the institution’s sticker price – and that is often the expectation of the institution as well. But there are enormous differences between and among institutions as to their willingness (or ability) to offer financial support.

At many of the most elite colleges, “merit” (typically determined by assessing the student’s overall performance in high school) is the basis of admission, but not the basis of financial support: the elites do not offer “merit” scholarships. Institutional support at these colleges is based on need, generally as determined by an analysis of FAFSA data. Some of these colleges have the financial capacity to waive all tuition and room and board costs for very low-income students – but the number of such students in any entering class is almost always very small.

At most institutions, however, there is an early determination of merit awards (what constitutes “merit” differs from institution to institution) and a later determination of need awards. Some students may receive awards in both categories, if they are both high achieving and relatively low income. The result can be a significant reduction from the institution’s sticker price.

But here is where things tend to break down. Surveys show that the size of the institutional award expected by prospective students and their parents is typically much larger than what the institutions expect to offer. The result, in recent years, has been a huge increase in the number of appeals being filed with financial aid offices, and a similar increase in the number of disappointed students, when their appeals are denied, or where the award is increased only modestly.

Part of the reason for this mismatch in expectations comes from a fundamental misunderstanding on the part of some prospective students and their parents of the role of FAFSA data on the one hand, and from the financial capacity of a given campus on the other hand.

The FAFSA data result in a calculation of “expected family contribution” (EFC), a figure that offsets the family’s financial assets with its financial liabilities (e.g., multiple children in college). But too many families think that EFC is automatically the price a family will be charged at the college of their choice. Unfortunately, only a relative handful of colleges and universities have the financial capacity to meet the full need of all of their students, and, depending on the proportion of needy students in the applicant pool, some number (often sizable) of the applicants will be offered institutional aid that is well short of what the EFC might seem to predict.

It is also the case that colleges and universities have contributed significantly to this problem, by annually raising their sticker prices much higher than the rate of inflation, and then increasing their discount rates (the amount of tuition dollars dedicated to aid) each year. The result is that the prospective students and their families have almost no idea of the relationship of the price they are being charged to what the institution is actually spending on each student’s education (see my blog posts of January 14 and January 21, parts one and two of “Should Price Reflect Cost?”).

That, of course, is a figure each prospective student should know, in choosing a college – but it is a figure that most schools are reluctant to disclose. (In fairness, it is actually a quite complicated calculation at research universities, where research and graduate education costs are difficult to separate completely from undergraduate costs. Often, they take the easy way out: dividing the total institutional budget by the number of students. The problem is that graduate students are much more expensive than undergraduate students, and this calculation seriously overstates the actual cost of undergraduate education.)

So let me tell you some numbers at Roger Williams University. As readers of this blog know, we have chosen to freeze our tuition at the 2012 level – $29,990 – and lock it in place for four years for the class entering in the fall of 2013. Our actual costs per student (not including such things as room and board, research grants, and the like) last year were $28,600, a figure that will rise somewhat in the coming year. Thus, we have effectively pegged our sticker price at our actual cost.

However, because of other revenue streams (summer school, drawdown of our endowment, annual gifts to the institution, rental of facilities, and the like) we are able to offer merit and need-based awards that total roughly $10 million for each entering class of students. Our entering class is about 1,000 students, so the math is easy: the average award is about $10,000. This figure reduces the average tuition to just under $20,000; room, board and miscellaneous costs add another $15,000 or so.

Thus, the typical prospective student is confronting an annual bill (if they are planning on being a residential student) of about $35,000 – a challenging number for many families. Federal aid (Pell grants; work study grants; subsidized federal loans; certain tax benefits) will reduce this figure, often substantially. So, too, will part-time work on the part of the student. Students who work as resident advisors, for example, get free room and board, and there are other campus-based positions that also pay reasonably well.

So what’s the point of this blog post?

First, the absolute size of the campus financial aid award is meaningful only if the recipient knows how much the campus is spending on his or her education (the more a campus devotes to aid, the less it has left to educate the student) – so applicants should press the campus to disclose that figure.

Second, be realistic about what your award is likely to be. Does the campus even offer merit awards, or is financial aid available only to students with demonstrated need? What is the size of the average award? (Campuses may be reluctant to disclose that figure, but you should demand it.)

Third, once you have this information in hand, determine what you can reasonably afford. Families sometimes make the mistake of relying too much on emotion, and not enough on hard-headed reasoning, in choosing a campus, and that too often results in an unsustainable level of debt. Students should avoid borrowing money above the federal limits of just over $30,000 (for four years). Federally subsidized loans can be fully discharged over 20 years (in some professions, 10 years), at a predetermined monthly rate. No such arrangement exists for private loans.

Choosing the right college is an important decision. But “right,” in this context, is not always the college the student most desires to attend. It also must be one that the student, and the student’s family, can reasonably afford.

As a university president, I, of course, think that Roger Williams University is the “right” school for most of our applicants. But I want our students to be happy and successful during their time with us – and too much debt affects both happiness and success. So use both your heart and your head as you make your choice – and good luck!