By Andrew Comstock, CFA®
Pull up the website of almost any college your student is excited about and you’ll find a price north of $75,000 a year. But here’s the number the website doesn’t show you: at plenty of those same schools, the average family actually pays closer to $20,000 or $60,000, depending on various factors such as in-state public, private, or out-of-state public schools.
One of our Beyond Wealth sayings is that nobody pays sticker price for college. There are a few rare exceptions, but the published price and the real price are almost always two different numbers.
When I share this with high-income parents, I can usually predict the response: that discount must be for other people. “We make too much to qualify for anything, so we didn’t even bother with the FAFSA.” These are smart, successful families. They read the fine print on everything, they ask great questions about their portfolios. And yet somehow they’ve decided, before running a single number, that college will cost them full freight.
They’re right about one thing. A household earning $500,000 a year won’t qualify for need-based aid. The expensive mistake is what comes next: they stop looking. They skip the FAFSA, they cross schools off the list based on the published price, and they budget for a number almost nobody actually pays.
Why so many families get this wrong
When I and most of our clients went to college, “financial aid” meant one thing: need-based aid from the federal government. If your family earned too much, you were out, and that was the end of the story.
But the rules have changed, and the vocabulary has too. There are really four different pools of money in play today:
Need-based aid: This is the one everyone knows, and yes, high earners are typically shut out of it.
Merit-based aid: Money awarded for your student’s GPA, test scores, and accomplishments. Here’s what I tell every family: your student can qualify for merit aid whether you make a billion dollars a year or one dollar. There is no income test. (Many colleges do require a completed FAFSA before they’ll award these packages, but not all do!)
Institutional aid: Discounts the schools themselves hand out, because colleges compete for students more than most parents realize, and they use their own funds to strategically shape their incoming freshman class. Awards can also reflect specialized talents and extracurriculars, geographic or demographic diversity, and legacy or alumni connections.
Strategic aid: Money that comes from making a formal appeal to a school about your specific family and your specific student. Most families have no idea this is even an option.
Three of those four pools don’t care what’s on your tax return. When a high-income family assumes they’ll get nothing, they’re usually right about one pool and wrong about the other three.
One of our clients owns a highly successful business and earns more than $500,000 a year. When their daughter enrolled in college, the family assumed their income would limit her access to any additional aid. Instead, they learned her school offered an extra $7,000 a year, and the only requirement to be considered was a completed FAFSA.
The Beyond Wealth perspective
Start with the FAFSA. We tell high-income families to fill it out even when they know they won’t see a dime of need-based aid. Many schools, private colleges especially, require a FAFSA or CSS Profile on file before they will award you their own merit and institutional money. Skipping it doesn’t just close the door to need-based aid, it can also close doors that you actually wanted open.
The FAFSA produces a number called your Student Aid Index (it replaced the old Expected Family Contribution a few years ago), which is a formula’s opinion of what your family can afford to pay for one year of college. I want to be clear about how to read that number. It’s an opinion. You can get pre-qualified for a $4 million mortgage, and that doesn’t necessarily mean you should go buy a $4 million house. The formula tells you what schools think you can pay. Your financial plan, and your values, tell you what you’re willing to pay.
And once the award letters start arriving, remember that the biggest scholarship does not automatically mean the cheapest school. A $25,000-a-year award at a school that costs $78,000 still leaves you writing checks for $53,000 a year. A $5,000 award at a school that costs $42,000 leaves you at $37,000. The family celebrating the big award letter is often celebrating the more expensive option. The only number that matters is what comes out of your pocket after everything is applied.
We have had clients come in very proud that their child received a $100,000 award package from a private university. The headline number was flattering, but the family was still going to pay nearly $50,000 a year. The same student received a smaller award from a state school, and the out-of-pocket cost there would have been closer to $10,000 a year.
One thing to do this week
If your student has a list of schools, even a rough one, here’s an exercise that takes about an hour.
Nearly every college publishes a net price calculator on its website (search the school’s name plus “net price calculator”). Pick the two or three schools your student talks about most, run each calculator with your real numbers, and write down three figures for every school: the sticker price, the estimated net price, and the gap between them.
For most high-income families, this is the first time they’ve ever seen what those schools would actually cost them, in plain dollars, side by side. Some schools will surprise you in a good way. Others will confirm they’re exactly as expensive as they look. Either way, you’ve replaced an assumption with information, and the biggest college planning mistakes we see all start with an assumption.
Want help turning those numbers into an actual plan for paying for college? We’d be happy to help.
About Andrew
Andrew Comstock, CFA®, is a Principal and Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm based in Overland Park, Kansas. Leveraging a strong background in institutional investment management, he specializes in creating research-driven portfolio strategies for wealth-building professionals and business owners. A University of Tulsa alumnus, avid global traveler, and proud cancer survivor, Andrew delivers tailored, impactful wealth management to the Kansas City area and beyond.
