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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.

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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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Chris Sciora
Chris Sciora
9 days ago

To my reading, both Georgetown reports are chock full of data with little useful knowledge. The economic value report states that STEM and business majors representing about 46% of graduates earn significantly more than all others. That’s flatly contradicted by the ROI report which states liberal arts college graduates earn about the same (actually a bit more) than than engineering schools. Presumably, engineering schools would be pumping out more STEM graduates in higher paid careers, no?

The bigger problem with the ROI report is completely ignoring the more than half of enrolled students who never graduate with a degree. Do they have a negative ROI? Breakeven? Who knows.

Overall, you end up learning that some majors and some graduates within those majors earn significantly more than others over a lifetime. And those same people typically earn significantly more than high school graduates. No one needs to read a fifty page report to reach those conclusions.

All of these kinds of ROI reports I’ve seen over the years universally end up concluding that a college degree is the ticket to success. High school graduates will limp into retirement after a lifetime of poverty. The main problem is the underlying assumption that high gross earnings translates directly to high net worth. That simply isn’t true.

Steve Spinella
Steve Spinella
10 days ago

Thanks. Your approach is a great example of scenario planning and research! One thing that might catch families unexpectedly is that private colleges (or even public colleges?) who lack non-student income sources may raise the cost each year after the first, knowing that once that initial choice has been made, the cost-benefit equation will change for the families. Counter-balance this by weighing college financial health and non-student income sources in the inital comparison. The best endowed colleges may actually lower costs after the first year to keep their students thriving and better compete with other top colleges, a strategy that may be unavailable to less-advantaged colleges.

Last edited 10 days ago by Steve Spinella
Dwayne 73
Dwayne 73
11 days ago

I am past putting my kids through college and it will be the grandkids starting in 5 years. The return on the college investment is not there for most degrees if you ask me. I went the vocational route and retired at 55 but that is a whole different discussion.
Currently in NJ, Rowan University has bought out several county community colleges. Most of my friends sent their kids to the community colleges with full credit transfer for their final years at Rowan’s main campus. How much can this save?
Is the college ring tapper club still important? Or is the college name important only for the first job interview and after that does the job recruiter only care about your work history? Do computer scanners even care or are they just looking for the correct degree?

Last edited 11 days ago by Dwayne 73
Newsboy
Newsboy
13 days ago

Kyle – good article!

One disturbing trend here in Pennsylvania: the largest “state subsidized” universities (the big 3 – Pitt, Penn State, Temple) have struggled with reduced taxpayer subsidy dollars from our state treasury. PA tuition subsidies, which are designated to offset in-state student tuition costs at state-affiliated schools, were greatly curtailed during the 2008-09 budget crisis and haven’t rebounded much since then. These schools have evidently figured out a creative way to help close their resulting budget gaps. Their acceptance percentage for out-of-state and/or international students (many paying full retail tuition) has risen dramatically during the past decade. Likewise, the admissions criteria used for admitting in-state (taxpayer-subsidized) students has seemingly become much more stringent, driving down the resulting percentages of in-state student attendees.

Another stealth (but significant) contributor to this upside-down admissions trend: many of of the big-name college ranking services have modified their scoring algorithms over the last decade to add greater weighting for showing “geographical diversity” of the attending students. Universities and colleges, faced with possible lower rankings, inevitably must have reworked their admissions criteria in an effort to sustain / improve their rankings…all of this occurring in the midst of a shrinking demographic pool of potential new applicants. This adds more fuel to the fire for state schools to give admissions preference to students from out-of-state (or, better yet, international students). Early indications are that this trend is now accelerating at a number of state schools – a byproduct of COVID19 negatively impacting the number of returning students.

As a result, our PA “big 3” universities have morphed in less than a decade from being a cost-effective, “safety school” choice for in-state students into a costly “hard-to-get accepted to” college option. Parents of HS students in PA are certainly not dummies…So they are now also making a run for the border, crossing state lines into Ohio, Maryland,WV, and even VA (with encouragement from HS guidance offices) – all in an effort to get their children this same preferred treatment (and significant tuition breaks) from out-of-state public universities.

End result: it can now be significantly more affordable to send a PA student with good grades to Va Tech, George Mason, or Ohio University than it would be to have them attend one of our in-state “big 3” universities closer to home. This is just ludicrous! A good number of these PA attendees will leave for college out of state and likely never return. What is the hidden cost of this emigrating “brain drain” in 10-20 years for the taxpayers in PA, who foot the bill for PA state college tuition subsidies? The current admissions process is clearly broken.

Last edited 12 days ago by Newsboy
Nate Allen
Nate Allen
14 days ago

Great article! I’m wondering if some of the colleges which have flat fee, work from home at your own pace degrees would be better for a motivated student? A super-motivated student could even get started in high school.

The best known is Western Governors (around $3800 per 6 month term, worked through as fast as a student wants to go), but even more well known colleges like LSU and BYU are now experimenting with such systems.

Kyle Mcintosh
Kyle Mcintosh
13 days ago
Reply to  Nate Allen

I’ll have to research that. I’ve not heard about this pricing approach.

Nate Allen
Nate Allen
13 days ago
Reply to  Kyle Mcintosh

I’d look at WGU first, as they seem to be the innovator, then look at others like Southern New Hampshire, University of Maryland, etc. (lots out there) which do some sort of online degree with a work-at-your-own-pace component. Obviously, lots of schools have an online option now, so that could be another approach outside of the own-pace part.

NY Moneyhawk
NY Moneyhawk
14 days ago

Interesting article! My older daughter is a Freshman in college and just went through the process so it hits home.

There is definitely a big variety of outcomes and costs as you noted, and some colleges still offer merit aid thought that seems to be in decline relative to financial aid. That’s why we applied to quite a few colleges to see what offers would turn up.

kristinehayes2014
kristinehayes2014
15 days ago

I think if colleges (rather than the government) had to subsidize the loans awarded to their students , we’d see a much more accountable system of higher education.

medhat
medhat
15 days ago

Really interesting analysis, particularly when you specifically mention the University of Wisconsin (in Madison, where I live) as being a lowest-cost out of state school, which has absolutely not been my impression from speaking with out of state folks who attend here. But the other note I’d offer is that, for HS kids with solid grades and scores, if they “enlarge the net” of schools in consideration, there are a number of schools (mostly public, in my experience) that offer significant financial incentives to attend, and can offset costs materially. My son is at one of those schools now, and my wife was also the beneficiary of a similar program when she was in school.

Kyle Mcintosh
Kyle Mcintosh
15 days ago
Reply to  medhat

It was certainly interesting to do the analysis. The two ends of the spectrum in terms of net cost were UW (Wisconsin) at one end and UW (Washington) at the other. I was not surprised by Washington as I have a friend whose daughter went there. I was surprised to see it as being cheaper for a kid from CA to attend Wisconsin rather than UCLA.

Guest
Guest
15 days ago

I currently have 2 kids in college and have found the EFC on FAFSA to be a joke. After my wife retired, our EFC dropped significantly as we expected yet the only help colleges were willing to provide was a bit more in subsidized and unsubsidized loans. The portion of costs we needed to pay was still FAR above our new/lower EFC even 2 and 3 years in.

Kyle Mcintosh
Kyle Mcintosh
15 days ago
Reply to  Guest

Interesting – I wonder if this was due to a lag in your taxable income for the FAFSA lagging your true situation. Would love to hear more on this.

Guest
Guest
15 days ago
Reply to  Kyle Mcintosh

Hi Kyle – Here’s a bit more detail. The FAFSA for school year ’21-22 required income from ’19. In ’19 my wife’s income had dropped significantly (she retired) so our EFC was only $13,000! However, neither college cut us an additional break from the previous year’s total cost when our income was far higher. While I recognize we are fortunate to still be able to pay the higher unadjusted cost for 2 private 4-year universities to the tune of $110k in ’21-’22, that’s not the point. FAFSA gave us a very low EFC but neither university “acted on” that far lower EFC by lowering our true out of pocket $$ requirement.

Kyle Mcintosh
Kyle Mcintosh
15 days ago
Reply to  Guest

Wow – that’s interesting. I talked to a Financial Aid Director as part of doing this article and his signal to me was that they’d take such a drop into consideration. But I am sure that approach varies school-to-school and may even depend on the year of your student. Schools are probably more likely to give a concession to a freshman (to get you in the door) rather than a senior who is close to graduation.

R Quinn
R Quinn
15 days ago

Very interesting analysis, especially the private vs public school net cost. Too late for me though, we paid for four children in private schools ending 25 years ago.

What I’d like to see analyzed is why college is so expensive, does it provide a worthwhile return for the majority of non- professional students and what viable alternative is there to the four year BA and still have an educated, productive society.

There must be a better way. IMO there is a great deal of wasted time by students and instructors.

If the system is valid, how can we have graduates with the earnings advantage of a college education and a student loan “crisis” at the same time.

Perhaps like with prescription drugs, we should negotiate the price of college. 😎

Kyle Mcintosh
Kyle Mcintosh
15 days ago
Reply to  R Quinn

I teaching Accounting at the college level. I am constantly telling my non-Accounting business students about how it’s a great place to start in terms of making good money after college. And starting as an Accountant does not mean you will be one forever, but it’s a good place to start. I know Accounting is not for everyone, but it can be a good way to enter an industry of interest compared to being a Marketing or Management major.

parkslope
parkslope
15 days ago
Reply to  R Quinn

The Georgetown Center for Education and Workforce has an analysis of college ROI.
https://cew.georgetown.edu/cew-reports/collegeroi/
https://cew.georgetown.edu/

During my time as a professor, the two things that clearly increased with tuition were the number of administrators and luxury facilities–dorms, student unions. Our faculty salaries were always pegged to the CPI and student-to-faculty ratios gradually increased.

Kyle Mcintosh
Kyle Mcintosh
15 days ago
Reply to  parkslope

I can certainly attest that college faculty salaries are not rising in-line with tuition. And lately, not even CPI 🙂

Luckless Pedestrian
Luckless Pedestrian
15 days ago
Reply to  parkslope

I’m also a former professor, and this is very true in my experience. The author refers to the figures he cites as “the cost of your child’s education” (emphasis added). What we really need is a calculator that separates the amount parents pay for their kid’s education from the amount they pay to subsidize administrative bloat and luxury amenities. I suspect most people would be shocked by the disparity between the two numbers.

IAD
IAD
15 days ago
Reply to  R Quinn

I think one of the disconnects that I have observed with my kids is there is no discussion of average income by college major when a loan is taken out or when a major is declared. Even if that initial disclosure\research is conducted, majors change and it certainly doesn’t happen anytime after the first semester starts.

There also needs to be clear discussions regarding normalized career paths. For example, a nursing degree would mean that you would be expected to pass your state boards and work as a nurse. A Political Science degree for example, does what kind of work upon graduation? It literally could mean anything from working on a political campaign to an external affairs (media) position. The pay difference between the two are drastic as are the stability of that position.

parkslope
parkslope
15 days ago
Reply to  IAD

While this is true to some extent, STEM and business accounted for 46% of college graduates in a recent survey.
https://cew.georgetown.edu/cew-reports/valueofcollegemajors/

As an emeritus business professor, it wasn’t surprising that most of my students and their parents had researched the value of different majors. However, it was also true that many of the liberal arts majors minored in marketing or management (especially those in communications, psychology and graphic design).

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