College tuitions are negotiable. For the past 20 years, colleges have discreetly offered discounts, when pressed or motivated to attract certain students. Competition among colleges in recent years has increased the practice of discounting significantly, and the size of discounts is greater than ever. Covid has of course, accelerated the trend. To maintain enrollment numbers, public, state run colleges have increased discounting through what is referred to as ‘institutional aid’ while many private non-profit colleges are now discounting tuitions by more than 50%.
Tuitions at state colleges can run up to $20,000, while private colleges are topping out at $80,000. Full price is also referred to as ‘sticker price’, though less than 10% of families ever pay that full amount. Various forms of ‘aid’ are available and can reduce tuition very significantly, so every parent should absolutely find out what forms of aid will be available to them. More on that later. Scholarships are over-rated, not nearly as accessible as many families are led to believe, and when they are available, it’s usually in the form of a one-time benefit. You can’t count on those monies for 4, 5 or 6 years.
And then there is the negotiated amount of ‘institutional aid’. Every college has an institutional aid budget, and it literally is a discount plan that they can apply with significant discretion. If a parent doesn’t ask, they won’t get it. Schools dole out institutional aid when they need to top up their enrollment numbers, basically fill seats, no differently than an airline.
Understanding college tuition models
College admissions processes and tuition structures have been referred to as byzantine, cryptic, unseemly, deceptive, and mind-numbingly confusing. It probably won’t make you feel any better to know that in 2019, the U. S. Department of Justice sued the National Association of College Admissions Counselors for anticompetitive practices. In essence, colleges were conspiring together to boost tuitions, lovely huh? Better to know than not.
The mechanics of the pricing - it’s crucial to understand that when you are in the market for a college education – you won’t start with a low base price and then add on additional costs. With college tuitions the pricing structure is inverted; everyone starts at full price – the ‘sticker price’ – and then tries to figure out what aid, scholarships, grants and so forth might be available to reduce their total costs. Basically, you start at full price and then the onus is on you to figure out what aid and discounts might be available to bring the price down.
What is the underlying discount methodology?
At the most fundamental level – poor, smart kids pay the lowest tuitions, while rich, ‘less smart’ kids pay the highest tuition. Let’s work through the discount structure by way of example. Assume that the Jones family is planning to send Billy to college. The Jones, an upper income family have about 10 schools they’re contemplating for Billy, one of them being University of California, Irvine (UCI). The sticker price for UCI (in state) students is about $16,500, and has an average SAT score of 1280. Billy scored 1200 on his SAT’s. It’s unlikely that UCI will accept Billy, but be assured that if they do, his folks will be paying $16,500 for the privilege. Conversely, Susie is a poor student with excellent grades (SAT of 1350). UCI will probably take her and she will pay less than $5,000, due to a variety of federal, state grants, and institutional grants aid. Next, we’ll get our hands dirty and explain what happens for those who reside in between those two extremes.
The Department of Education provides some financial aid to most students who are planning to enroll in college. Financial aid comes in two forms, need and merit. Need-based aid is crucial in making college affordable to low-income students. As a point of reference, if you’re making over $100k annually, you will rarely qualify for this form of need-based aid. Merit aid is just as it sounds – if you’ve made the grades, you’ll possibly get the aid. It should be obvious though, at top colleges, every kid has excellent grades. Who provides the aid? Need-based aid comes from federal, state and college grants. Merit aid is generally provided by the college and is typically referred to as “institutional aid”.
How does one apply for aid? Need-based aid is obtained by filling out the FAFSA (Free Application for Federal Student Aid), which is also a mandatory application for all colleges. The FAFSA leans heavily on families’ tax filings - and be forewarned that the volume of financial, household and familial information they require is quite surprising. (Financial advisors generally charge $400 to $1,000 to complete and submit the FAFSA) The good news about the FAFSA is that when you submit it electronically (which is easy to do) every college that you consider applying to will have automatic access to your application.
Then you have scholarships and they are accessed by submitting the College Student Scholarship (CSS) profile. The likelihood of getting scholarship monies is over-rated. However, once you’ve filled out the FAFSA, it is worth repeating the abbreviated process of filling out the CSS application. Scholarships are typically awarded on a case-by-case basis by a specific college and are generally awarded for a single year.
Let’s now get into the mix of students that colleges generally hope to achieve. This will help you to understand where your kid might reside in the ‘grid’ at a specific school, and of course, how much you’ll pay for your kid to fit in. Through the mathematical analysis of millions of recently admitted students, we have ascertained that there are two significant factors in determining which students are accepted, and what their Expected Family Contribution will be: 1- grade/test scores, 2- family finances. There is a matrix which reflects the inter-relationship between these factors, and it is oriented towards maximizing revenue for the college. To meet their financial, academic and diversity goals, most colleges endeavor to have a 10/80/10 distribution of students:
10% of the student body should be very high academic achievers and the college will give significant institutional aid to these students in order to attract them to their college. This pool gives the college academic credibility.
80% of the student body should be “within range” academically, and come from an affluent family. Recall that institutional aid comes out of a college’s own budget and it wants to give up as little of that money as possible. It’s easy for an admissions rep to say to a wealthy family of a kid with middling grades, “You are not unique relative to our applicant pool, and we reserve the majority of our aid for exceptional and needy students.” The salespersons in the admissions office are very well versed in this process and they will happily point to a thick pile of applications on their desk when mentioning, “You are not that special. We’ll admit you, and as a good faith gesture, here’s a little sprinkling of institutional aid.”
10% of the student body is thought of as the “vanity pool.” These are students who the school admits for the purpose of meeting diversity requirements – they are generally low income, minorities, and disadvantaged students. They will receive substantial institutional aid.
There are of course additional factors which can come into play, such as legacy points (parents, grandparents are alumni). However, colleges are businesses and the majority are under the most significant financial pressure in the history of higher ed, and they need to realize as much revenue as possible.
Prepare for the negotiations - be factually informed
Here is a free program that will show you the range of tuitions students paid last year at every major U. S. college College Tuition Negotiator These are data points that will enable you to sit with an admissions rep and negotiate from a fully informed position. You can literally ask an admissions officer, “If your average net tuition last year was XYZ, why are you asking me to pay $5,000 over XYZ?” An accompaniment to that program is the College Admissions Probability program. This will provide you with a personalized probability of acceptance, and an estimate of what your expected family contribution EFC will be for a given college. As a non-profit, Educate To Career offers many other programs to assist with the college to career planning process.
Institutional aid and the negotiation process (Now the fun starts!)
When a school accepts a student, they’ll send an acceptance letter with an offer of aid. The aid will include federal and state aid (which will be the same, regardless of college), as well as the “institutional aid” which is a college-specific grant. As we said above, the institutional aid is coming out of the college’s budget; it can be significant, and it is almost always negotiable. The remaining balance when you deduct all aid from the sticker price is the (EFC). The EFC is a technical-sounding term for “What we’re hoping to get you to pay.” Federal and state aid are a fixed amount and non-negotiable. The more institutional aid you receive, the lower your EFC will be. Because you did your homework and you know what discounts were given out and tuitions paid at the colleges you’re considering, you are in a very strong negotiating position. And we can tell you from extensive experience that if you have 5 schools you’re dealing with in the manner we describe above, 2 to 3 of them will likely increase your institutional aid from where they started, by many $thousands.
Key concepts in negotiating with a college over institutional aid:
Have at least three schools that your kid is absolutely ok with attending. And make sure that at least one of the colleges is a state school so they know you are price sensitive.
Let the admissions officer at each college know that you’re looking at other similar colleges. They know exactly who they compete with for students. This is a subtle way of serving notice.
Ask the admissions officer what the lowest net price that a “similarly situated” student (same grades, same family finances) is paying. Compare what they tell you with what you know from our programs.
When they’ve given you their best offer, ask for additional institutional aid.
Know that in years 3, 4, 5 (and 6 if necessary) colleges dramatically reduce their aid. Try to lock aid in up front, though that is difficult.
Some additional info that will save you $$ and headaches
Here is some additional information that you need to know when preparing for the college-selection process, and that is the effect of attempting to enroll a child in a “reach school.” Many parents are fanatical about getting their kid into the most elite college possible. A reach school is a college in which the child does not qualify academically. They are basically out of the SAT range. Having a kid in an elite school sounds great at cocktail parties. However, chasing reach schools is expensive and dangerous:
It’s expensive, simply because the school knows you want them and they don’t need you. These schools send out 1,500 acceptance letters when they only have 500 open seats. They want to have a few hundred students who they have great leverage over and will pay full price, or very close to full price.
Students fail, a lot. The five-year graduation rate at four-year colleges is barely over 50%. Who fails? The students in the bottom quartile of the class.
The reach school is very profitable for colleges. It’s an expensive disaster for most families.
Financial positioning – This is the exercise of structuring and presenting your family finances and assets in a manner that reduces your tuition liability. The family’s primary residence is exempt from their net-worth calculation. Retirement assets are also not counted in the calculation of EFC, but other assets: savings, 529 accounts, CDs, money market accounts, investment real estate, stocks, bonds, mutual funds, commodities, are all included in the EFC calculation. If you wish to engage in structuring your finances in a way that reduces your tuition, consult an expert regarding what is allowable in the current year, as well as a tax lawyer.
Elite private colleges – These are reach schools for literally 98% of students who are enrolling in college. Some of the elites that have significant endowments and will give full rides to exceptional students. When you say your kid is a genius, star athlete, plays the cello and should be accepted by all of the Ivies, the elite colleges have an acceptance rate of less than 10%, and your kid’s application is typical of Ivy applicants.
Private colleges (2nd and 3rd tier/SAT scores of 1,200 to 1,400) – are struggling financially due to declining enrollments in recent years. Our data show that these colleges are discounting tuitions significantly in recent years to attract new students. This is especially true with the Covid environment.
Summarizing all of this
The short story is that colleges are negotiating tuitions now, more than ever before. They’re under financial pressure and they need your revenue. If you feel charitable, know that you’ve already paid them once with your tax dollars. They won’t decline a second helping though. Don’t be shy when you’re asking and then pushing for a better price. Being informed with real data points regarding what other students have paid and using that as a basis for asking puts the onus on them to justify their offer sheet. And give yourself options – have at least 5 schools on your short list and you are very likely to receive offers that will meet your kids’ educational needs and match your budget.
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This article has been submitted by Educate To Career (ETC) co-founders, Paul Hill and Michael Havis. ETC is a nonprofit, specializing in providing college planning programs and data to over 1,000,000 families, financial advisors, and campus career centers each year. We are the leading vendor of actuarial analysis of college outcomes data to student lenders. Our charter is to help young people get an affordable education, leading to a real job, with no student debt.