Is college too expensive or do people just not understand how to pay for college?

There is another new article out on the difficulty that students and their families are having paying for college. I have no question that many families do in fact struggle with the costs of higher education. However, I also strongly believe that if students and their families understood college financial aid better, that many fewer students would be struggling.

The problem inherent in the process of paying for college is that the cheapest choice, i.e. the college with the lowest tuition, is not in fact the cheapest choice for many families. Most state schools are cheaper than the private colleges. Yet many of these same “cheap” colleges, gap the amount of financial need that they will meet for their students.

Here is what that means. All families applying for federal financial aid need to complete a FAFSA. That form, using standardized formula, gives a number that a family is expected to contribute to help pay for the students college expenses. Let’s say that this number is $5,000. The student looks at two colleges, each costing $20,000. But College A covers 90% of need and College B only covers 50% of need. College A will subtract the FAFSA contribution of $5,000 from the $20,000 cost of the college and come up with a need of $15,000. College A provides financial aid to meet 90% of that need or $13,500. The cost to the family for College A is $5,000 that the FAFSA said they could pay plus an additional amount of $1,500 that the college gapped for a total payment of $6,500.

College B takes that $5,000 from the FAFSA, subtracts it from the $20,000 cost of the college and also comes up with a need of $15,000. But because College B only meets 50% of need they only give financial aid in the amount of $7,500 or 50% of the $15,000 need. The cost of College B to this family is the $5,000 from the FAFSA plus an additional amount of $7,500 that the college gapped. Total cost is $12,500.

Both colleges cost $20,000 but at College A the family pays $6,500 and at College B they pay $12,500. Which is the better deal? That is easy to answer when you understand gapping but few families do and thus often pick the college that has a greater out of pocket expense.

This issue is even more of an issue if the student is also looking at mega expensive College C. College C costs $45,000 a year but they meet 100% of need. When figuring financial aid College C subtracts off the $5,000 from the FAFSA from their cost leaving a need for the family of $40,000. And because they meet 100% of the need, they provide $40,000 in financial aid. All of a sudden, College C is the cheapest college for that student even though it has the highest cost.
For other issues regarding college financial aid, look at the article I put together on college financial aid basics. The more people know, the less college can cost.