College Math

Kyle McIntosh

WHAT’S THE REAL PRICE? In September, I wrote about the potential tab for sending our first child to college in 2025. The four-year cost was estimated at anywhere from $65,000 to $430,000, depending on the college chosen.

This wild disparity led me to conclude that college financial planning was like saving to buy a car—when you don’t know if you’ll drive off the lot in a Honda or a Lamborghini.

Since then, I’ve tried to put a sharper pencil to college costs. I had the help of an expert on student financial aid, who advised me to complete the Federal Student Aid Estimator. This government calculator yields your expected family contribution, or EFC. This is the annual amount families are expected to pay for tuition, room and board, books and other college costs.

To get apples-to-apples comparisons, I used the following factors in all my calculations:

  • Family size: four, with one child entering college.
  • Annual income: two adults making $120,000 combined.
  • Non-retirement investment accounts: $250,000.
  • Home value: $500,000 with a $350,000 mortgage.
  • Student performance: top 15% in grades, as well as SAT and ACT test scores.

When I plugged these factors into the Federal Student Aid Estimator, it said the expected family contribution would be $36,000 per year. If you assume a student will borrow $5,500 to $7,500 per year—the federal direct loan limits—then the family would have to pay roughly $30,000 a year for college.

That’s a steep price. It represents 25% of the hypothetical family’s annual pre-tax income. Or, if paid from savings, four years of college costs would eat up nearly half their $250,000 in non-retirement investments.

To get a more precise estimate, I was advised by my college-finance expert to try the net price calculators available on the websites of all U.S. colleges. These calculators offer a wealth of data.

To start, they provide a college’s undiscounted all-in cost. Next, they estimate the scholarships and loans a student might receive. What’s finally left is the estimated price a family might pay out of pocket for a year of schooling.

In running my experiment, I selected 20 schools: 10 private schools, five public in-state California schools and five out-of-state public colleges. Across the 20 colleges, the average annual all-in cost was $54,000 a year, with a range from $24,000 to $82,000.

With scholarships and loans factored in, the average price dropped to $35,000 annually for our hypothetical family. The cost ranged from $17,000 to $54,000 a year, depending on the school.

While this range is wide, 13 of the 20 schools had an annual family cost of between $30,000 and $40,000. That suggests that the Federal Student Aid Estimator gives a good idea of what college will typically cost a family.

Many families assume that in-state public universities will provide the lowest-cost education. From my experiment, I learned this isn’t necessarily so, at least here in California. Here’s how costs compared across the different groups of schools I sampled:

Private colleges. For the 10 private schools, the average annual undiscounted cost was a whopping $69,000 annually. But the sticker price doesn’t tell the true story. For our hypothetical family, private schools offer big discounts, averaging 44%, making them competitive with top in-state public schools. After the discount, the cost fell to $39,000 a year, on average.

Among the 10 private schools, the discounted cost ranged from $27,000 to $47,000, with seven schools between $34,000 and $44,000. In my experiment, private schools had the highest family cost, on average. But that wasn’t true across the board. Some top private schools—including Duke and Georgetown—had net prices that were comparable to the cost of public in-state schools.

Public in-state schools. For the five in-state California public colleges, the average annual undiscounted cost was a reasonable $30,000. The average discount, however, was only 3%. This led to an average family cost of $29,000 per year. Prices ranged from $21,000 to $36,000, depending on the school. In-state schools cost less than private schools—but my experiment wasn’t done yet.

Public out-of-state schools. Among the five schools I selected, the average undiscounted college cost was $48,000, with a range from $39,000 to $57,000 a year. These colleges offered big discounts to our hypothetical out-of-state student, with an average discount of 31%. After the discounts, the average family cost fell to $34,000 annually—still higher than California public colleges’ $29,000.

The discount range among these schools was enormous, however, ranging from 6% to 69%. After the discounts were applied, the expected family cost fell to $17,000 to $54,000 annually. The surprising conclusion: For our hypothetical family, the lowest-cost school was an out-of-state public institution, the University of Wisconsin.

My advice: If you know the schools your child might want to attend, complete the net price calculators for those institutions. If you don’t have a short list of schools yet, the Federal Student Aid Estimator will give you a reasonable estimate of what your child’s college education could cost you.

While my experiment found that the range of costs was narrower than the published prices suggest, the potential cost is still alarmingly high—roughly $35,000 a year, on average. If you’re fortunate enough to be in a better financial position than the hypothetical family I chose, you should be prepared to pay even more.

Kyle McIntosh, CPA, MBA, is a fulltime lecturer at the California Lutheran University School of Management. He turned his career focus to teaching after 23 years working in accounting and finance roles for large corporations. Kyle lives in Southern California with his wife, two children and their overly friendly goldendoodle. Follow Kyle on Twitter @KyleGMcIntosh and check out his earlier articles.

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