STEP 4: Your True Cost of College
Your True Cost of College
Everybody really wants to know their true out of pocket cost when it comes to college. The financial aid formula that you saw to determine need-based financial aid is the cost of attendance minus the expected family contribution equals your need. Not every school gives a 100% of that need. So, what I wanted to show you was what your net out of pocket cost would be.
Let's look at this example case study really quick. Here's your cost of attendance minus your expected family contribution equals your need, we'll take a state school as an example here at $25,000 per year in cost. We'll take UC at $33,000 per year in cost and then we'll take a private school at $55,000 a year in cost of attendance. We showed you how to calculate your expected family contribution and hopefully, you've done that already. And in this case here we just said that was $15,000. So, you can see there and your need a state school would be $10,000 per year.
Your need at UC will be approximately $18,000 per year and your need at a private school will be $40,000 per year. So, not every school gives 100% of need. If you look at the state schools averages these days, it's about 50% is what they're providing in need-based financial aid.
At the UCs, I've seen anywhere between 70% and about 85% just depending on how far away the EFC is from the cost of attendance for family and then a lot of these private schools can definitely vary. A school like Stanford, Harvard, Princeton or Yale will give 100% then a lot of these other private schools can vary anywhere between 50 to 100%. These are things that you need to find out in advance. Because whatever they do not provide to you in need is going to fall back on the shoulders of the parents or the families in general.
This means your net out of pocket cost is your expected family contribution plus any unmet need. It's important for you to look at these numbers in advance because of the fact that you might want to consider looking at a breadth of different colleges for your student to apply to.
Remember, you want to create a balanced list of schools for your student academically, so safety, target, and rich schools. But, you also need to create a balanced list of schools for you financially as well, so a few that you definitely can afford, some that are slightly out of budget and then just these are not within budget but maybe if they got in, you’d figure out a way to make it work or they have they have bragging rights for the rest of their life.
From there you’ll want to figure out an average across the board in terms of what your net out of pocket cost might be at some of these universities you want your student to potentially attend, then you need to multiply that times the years that it takes for an average student to graduate. Be sure that you do this because it's so important that you create some sort of funding schedule for each of the years that your student will be in school.
In order to build a solid college funding plan, you’ll want to keep in mind how much you'll have to probably pay per year, how long you'd have to pay for it and the total amount that you’ll have to provide. The best way to solve for this is to work backwards instead of just thinking about using all your assets and cash flow until they run out and then borrowing from there.
With that said, there are three questions that you need to ask every single university. One, what percentage of need do you typically meet? Two, what percentage of need that you meet is gift aid versus self-help? A loan is still a loan in my opinion, you should always have a plan to pay it off sooner than later. Then the next is how long does it take for an average student of yours to graduate?
Beyond this, you're going to want to go to the college's financial aid section of their website. You want to go on there and look at what types of forms they're actually requesting for families to be able to complete. This will give you an indication if they're using the federal methodology versus the institutional methodology. They also have these net price calculators online that you can plug your general information into to see what your net out of pocket cost would be.
Please be very, very careful with these. I've had clients that have come in before. They've plugged in the numbers assuming that they plugged in the correct numbers and all the assets and investments that they were supposed to and counted their income as they were supposed to. And then what happened was they said okay you should probably only pay about $25,000 out of pocket to attend this school. The family says well, that's great. We'll have them go ahead and apply early decision to this university which is binding and then in the end what have happened was when they went to fill out the financial aid forms, the financial aid award was nowhere near what they thought it was going to be.
Remember, good input into these calculators equals good output. So, please be very careful with these and make sure you're getting a good idea of all the different dollar amounts that it might cost for you at each university so that that way you get an average cost that you can use to be able to fund your children's education. Build your college funding schedule today. It's going to be worth it. You want time on your side.