Sticker versus net price

The general pattern is that most colleges and universities, particularly private ones, have an artificially high and unreliable sticker price while charging most students a discounted price ( net price ) that varies considerably. Some people compare college prices with "airline tickets" since "everybody pays a different fare".

Another report agreed: Sticker price is the full price that colleges list in their brochures and on their websites. Net price is the price students actually pay. Net price accounts for the fact that many students receive grants or scholarships. So it can be considerably lower than sticker price.

Discounting began in the 1970s and was dramatically expanded in the 1990s, according to one report. Discrepancy between sticker and average net prices can vary substantially. Estimates vary, but show a consistent pattern of sticker prices being much greater than real costs, sometimes more than double, sometimes only one and half times as high. Estimates are that 88% or 67% get some form of discount. Generally, the sticker-to-net price discrepancy is greater at private colleges than public universities. For example, in 2014-2015, the average sticker price for tuition, fees and living expenses at private colleges such as Caltech, was $198,700 while the average actual cost was $91,250; at public colleges such as Georgia Tech, the average sticker price was $157,100 and the average actual cost was $118,500. Another estimate was that the average postgraduate gets $19,500 in grant aid along with $1,000 in tax-based aid to offset tuition and fees.

Colleges use high sticker prices because it allows them wide latitude in how to use funds to attract the best students, as well as entice students with special skills or increase its overall racial or ethnic diversity. The most sought-after students can be enticed by high discounts while marginal students can be charged full freight. Further, the high sticker price is a marketing tool to suggest the overall worth of a college education, along the lines of encouraging people to think that "schools that cost more must provide a better education." A report by the Pew Research Center found that while there was growing concern about escalating college prices, most Americans believed that their personal investment in higher education was sound. But discounting adds complexity to decision-making, deterring some students from applying in some instances based on a false sense of unaffordability.

Net price calculators

In the fall of 2011, colleges were required by federal law to post a net price calculator on their websites to give prospective students and families a rough estimate of likely college costs for their particular institution, and to "demystify pricing." A student or family could go online, find the calculator at a college's website, and enter the required financial and academic information, and the calculator should tell them an estimate of the likely cost of attending that college. The first online calculators were started by Williams College. The online calculators look at financial need and academic merit to try to estimate the likely discounted price offered to a particular student from a particular college, using information including details from tax returns, household income, grade point averages and test scores. Colleges vary in terms of their pricing formulas; some consider home equity as a factor while others disregard it. We recommend that families shopping for colleges go to a college's website and use the net price calculator to get a personalized estimate of cost.

There are numerous potential problems with the calculators. Some are difficult to find on a college's website; others require specific financial numbers, possibly leading to errors by parents or students; some are difficult to understand and use; some may be manipulated by schools to increase applications or to make it seem as if a college is "more affordable" than it is. Accuracy of calculator estimates may vary considerably from college to college. Ultimately aid decisions will not be made by calculators, but by humans in the admissions offices.

Types of financial aid

Advisors can help students and parents decide whether to choose private universities or public ones, including state-subsidized schools as well as community colleges, and to help students and parents understand different types of financial aid.

• Need-based aid is offered according to the financial need of a student. Generally colleges at the "top of the pecking order" dispense aid solely in terms of need using "fairly predictable formulas". According to one source, about 30 elite universities have "coffers deep enough to meet all student need" and consequently only offer need-based aid.
• Merit-based aid is scholarships and grants awarded to top academic performers or others with special talents. One report suggested that academic scholarships tended to be few, and were usually awarded by the admissions office and are "highly competitive". Another report suggested that most colleges use merit scholarships, based on high scores or grades or other accomplishments, to lure students away from a competing college.

One view is that most colleges award aid using a mix of both. Further, student loans can lessen the immediate difficulty of large tuition bills but can saddle a student with debt after graduation; in contrast, grants and scholarships do not have to be paid back.

Schools trying to climb the prestige ladder use merit-based scholarships to attract top students to boost their rankings in the US News guidebook. As a school's "stock" rises, high performing students start attending in greater numbers, and consequently the college can "ratchet back on the merit aid to wealthy students" and shift funds towards "need-based financial aid". Elite schools such as the Ivies don't give merit scholarships, according to two reports. Another tool is to use the College Board's expected family contribution calculator that can give families an idea of how much college will cost, but not for any particular college.

Families think their sons and daughters are awarded a merit scholarship because of the fact that they are wonderfully smart and talented ... The primary reason for awarding a non-need-based merit scholarship is to change a student's enrollment decision from another institution to our institution. That's why colleges do it.