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Confusion Over Net-Price College Costs May Deter Students

It's true that college is expensive. But with financial aid, it's more accessible than many families—particularly low-income families—realize.

Too often, families overestimate the cost of college and are unaware of the grants and scholarships available to help finance it, according to a paper released Monday by Andrew Kelly of the American Enterprise Institute in Washington.

At the heart of the confusion is the sticker price for attending college versus the net price—the amount that students pay minus financial aid. Six in 10 families rule out some colleges because of sticker price and don't realize the net price is typically far lower, the AEI research found.

The Higher Education Act of 2008 requires colleges to have a net-price calculator on their websites to give consumers a better picture of the true cost of college. (See past blog about details.) However, the AEI survey discovered that many families aren't aware of the net price, and the lack of transparency puts them at a disadvantage.

The shock of the published price of private schools may lead families to dismiss the possibility, when private schools typically provide more aid, often making them competitive with the publics. Two-thirds of students at private nonprofit colleges received institutional grants, and 30 percent of first-time students at public four-year colleges did, the latest data from the National Center for Education Statistics shows. The College Board estimates that the tuition discount was 33 percent at private nonprofits and 18 percent at public four-year schools in 2008-09, Kelly cites in the paper.

Only about one-quarter of high school juniors and seniors surveyed by AEI could give an accurate estimate of tuition costs at the type of school they planned to attend, with most overestimating.

Parents are concerned about cost, ranking it second in importance after quality of an institution. Just 12 percent of parents surveyed felt they were "very well informed" about college costs, and 46 percent reported they didn't know what FAFSA was—the Free Application for Federal Student Aid, the first step in securing money for college. The lowest-income parents were the least likely to recognize students could reduce tuition costs with financial aid.

In his paper, Kelly suggests three ideas to better inform students on college costs:

1. The federal government could generate net prices for the schools that students indicate interest in when they fill out the FAFSA;

2. School counselors could inform families about prices and create customized summaries of costs at local colleges based on the students' academic record and family income; and

3. Developers could build an online tool to compare net prices across institutions to better inform families about their options and affordability of college.

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