The Bursting College Bubble: How can prices keep going up, up, up?

Excerpts from The Real Cost of College: How to Finance Your Kids College Education Without Bankrupting Your Retirement.

by C. Gary Hoffman, MBA, CFP

When the Economy is Bad, the Cost of College Increases

When the economy worsens, state budget revenues go down and government pocket books tighten up. To make college ends meet, state governments often further raise the price of tuition and fees at colleges as UVA did in 2003, by upwards of a whopping 23%.

Where to Go and Why It Matters

College selection is one of the most critical steps in controlling the cost of college; amazingly enough students, parents and guidance counselors are rarely aware of this most important fact.

If you are seriously interested in paying less than the full sticker price for college it's imperative to apply to more than one college and to know what schools want you and are willing to pay.

Economic Principles of the High Quality Student

Colleges operate under the same economic rules as any business in a capitalistic society, supply and demand. If your student is in high demand for reasons of academic merit, cultural diversity or athletic potential, a college is more likely to offer money to your student to get them to attend.

Private colleges have the most flexibility in awarding scholarships because they are more autonomous than public colleges and universities who derive a large portion of their budget from their respective state government.

The high academic quality student will always be more in demand than the average student admitted to any college. Therefore the key is for the student applicant to identify colleges in which she is in the top quartile or better in terms of admitted GPAs and College Board scores; the higher the student’s academic achievement in relation to the admitted student body, the more likely she is to be awarded merit scholarships all the way up to the full cost of attendance.

It's Not Just Grades and College Board Scores

Grades and Board scores are just part of the complete applicant package™. Colleges want more. Ultimately they want to admit students who will become successful graduates and ultimately, successful alumni donors. In order to increase the odds of success a college looks for patterns of success in other aspects of the student applicant’s life.

Students should exhibit examples of achievement outside of the classroom. Leadership is a characteristic that admissions departments seek. All of this should be "packaged" by the student in the form of experience acquired by the student over a period of time. This experience should be evidenced by a "student resume" either in a traditional resume format, on the application itself or in the form of essays or letters of recommendation.

If a College Wants the Student They Will Pay to Have the Student Attend

Part of the reason that the student should apply to numerous colleges is because of the laws of supply and demand. Also if a college knows that a highly qualified student is in demand and sought after, they are more apt to step forward with financial incentives to entice the student to attend their college.

The Real Cost of College™

The RealCostofCollege™ is defined as the cost of attendance (which is roughly equivalent to the total outlay for college each year) less the FreeMoney™ offered by the college or university.

Finding Your Real Cost of College™?

When the student or parent receives their financial aid award letter, it's important to differentiate between FreeMoney™, which is in the form of grants and scholarships, and so-called "self-help" aid in the form of loans and work-study.

In common literature about financial aid, the references from any given college are normally stated in terms of the average amount of financial aid awarded per student. Because of the way the financial aid is distributed (specific to each student based upon their specific talents and needs), knowing the average amount of aid awarded by a particular college provides very little help to any one individual college applicant in estimating what their cost will be. (Knowing average awards might help in college selection however, as we will see later in my book.)

What really matters therefore is not what the average award is for the average student -and the resulting costs, but instead what you have to pay, in real dollars. This is your RealCost of College™. The Real Cost of College™ is the total cost of attendance (COA) minus the FreeMoney™ awarded.