President of Private College 529 Plan, a non-profit prepaid tuition plan operated by hundreds of private colleges and universities.
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The old saying that “everything is negotiable” isn’t always true, but don’t assume the publicly advertised price tag for a college education is the amount students will pay. As the president of a prepaid tuition plan focused on private colleges and universities, I often encounter this misconception. While the sticker price provides the base price for tuition and fees, it is important to know that the net price for a private college degree often is much lower after factoring in grants and scholarships.
Because of the pandemic, students and their families are even more concerned about the cost of attending college and the value of a degree. For 79% of the 2020-21 first-year class, cost was the most important factor in deciding where they would attend school, according to a survey of roughly 10,000 students by Hobsons. For more than 58%, financial aid was also a top factor, according to the data.
There are tools to help families get beyond the sticker price. Through the College Affordability and Transparency Center, families can research the cost of attending the most expensive and least expensive schools based on tuition and net price. The federal government requires schools to provide a net price calculator on their websites.
On average, private, nonprofit four-year school students receive more grant aid (federal, state or institutional) than students at public colleges and universities, according to the College Board. The average grant aid per student for the 2020-21 school year at four-year publics was $7,330; at private, nonprofit four-year schools, the average was $21,660. The amount of grant aid can vary widely based on a student’s or family’s financial situation as well as the student’s academic achievements, but in some cases, the net price for a private school may be lower than that of a state university.
In this Covid-19 era, many families have faced unexpected economic hardship due to job losses or business closures. Faced with the sudden inability to pay tuition, many private colleges responded to appeals by bolstering grants.
For example, a midsized liberal arts college in New England that is a member of our plan has received a sharply higher number of appeals from families. The school set aside an additional $2 million to fund Covid-19-related financial aid appeals. It has already allocated more than half of that. In addition, it has distributed $1 million to students that the school received from last spring’s federal CARES Act.
Beyond The Price Tag
But cost shouldn’t be the only consideration when deciding where to apply to college or which offers to accept. Graduation rates and the value of a degree are often overlooked by students considering multiple colleges, but they can be incredibly important measures of a school’s quality and cost.
About 61% of first-time, full-time public college students earn a bachelor’s degree in six years. Graduation rates tend to be higher among nonprofit private four-year schools at 67% on average. The comparable rates for four-year graduations are 33% and 55%. The schools with graduation rates of 90% and higher tend to be private colleges with household names, such as Princeton, MIT, Stanford and the University of Chicago.
The value of a degree is often equated to earning power. For example, the median weekly pay for people with bachelor’s degrees was almost 80% more than the pay for those with just a high school diploma, as of Q2 2020. Holding a degree from a private university versus a ranked public university can boost potential earnings even higher. A report from Georgetown University Center on Education and the Workforce notes that although student debt for private colleges is over twice as high than for public college students on average, lifetime earnings over 40 years average 9.5% higher for private degree holders.
Worth Saving For
In the end, saving for higher education before a child starts thinking about where they’d like to attend is one of the best financial decisions a family can make. One way to do that is through a traditional or prepaid 529 plan. Traditional 529 plans are managed by 49 states and the District of Columbia, providing families with many plans from which to choose. There are fewer prepaid 529 plan providers, though there are options available for state and private colleges and universities, and those plans are not affected by the stock market as traditional plans can be.
Whichever option you go with, though, planning is critical, and considerations go beyond the price tag. But I believe the benefits of a college education are worth saving for.
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