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Making Sense of College Aid

Cole Schenewerk, with father Greg and mother Janie, at their home in El Cajon, Calif. ENLARGE
Cole Schenewerk, with father Greg and mother Janie, at their home in El Cajon, Calif. Sandy Huffaker for The Wall Street Journal

Cole Schenewerk has a tough choice ahead of him.

Is a college education worth the expense? Dale Stephens, author of "Hacking Your Education", thinks there's a better way. Zac Bissonnette, author of "Debt Free U", says college offers an excellent return on investment. Who's right? WSJ's Jason Bellini has the Short Answer.

The high-school senior from El Cajon, Calif., already has gotten an acceptance packet from Southern Methodist University and a preliminary scholarship offer from an Ivy League college. And he is still waiting to hear from seven other schools, which he expects will dangle a variety of financial-aid offers.

"Definitely, finances are a big deal," says Mr. Schenewerk, a coin collector who plans to work part-time in college while studying business. "A lot of these schools have really high sticker prices. If I don't get the scholarships I need, I won't be able to go there."

How Do Schools Stack Up?

The financial return on a college education depends on a complex calculation involving cost and the potential payoff. This tool will help you determine both.

Many high-school seniors are in a similar situation. They have taken their SATs, written admissions essays and sent in their applications. Now the acceptances—and financial-aid offers—are rolling in. The pressure is on to figure out which college might produce the biggest return on investment.

But getting to the bottom line can be a dizzying exercise. Colleges aren't required to use uniform language to describe their financial-aid packages. Only about 700 of the nation's roughly 6,000 colleges have adopted the U.S. Department of Education's "Financial Aid Shopping Sheet," which provides a standard format for evaluating costs and performance. (It is on the web at

Some schools don't even mention costs in their financial-aid award letters, while other schools cite only tuition and fees, ignoring transportation, textbooks and living expenses. Many colleges describe loans as "financial aid" or obscure the fact that the aid package includes federal loans to be taken out by parents.

What's more, some schools are generous with grants and scholarships for freshmen, but are less so for upperclassmen. And most schools leave it up to families to guess how much costs will go up each year.

Choosing a college involves a complex mix of variables, including course offerings, geography and overall fit. But purely in financial terms, families can make smarter decisions by zooming in on factors such as net price after aid, graduation rate, job placement rates and how much you might have to borrow.

"When you are looking at your final options, you want to set aside, for the time being, the emotional content and analyze things rationally," says Anne Sturtevant, executive director of higher education at the College Board, provider of the SAT and Advanced Placement Program.

The consequences for making a bad choice can be enormous, given the rising costs. The average student who borrows has piled up nearly $29,000 in student loans by graduation, or more than $37,000 if you include loans taken out by parents, estimates Mark Kantrowitz, publisher of, a financial-aid resource site.


Here is a step-by-step guide to making the best possible college choice—in financial terms, anyway. (For an interactive tool that can help you compare your various financial-aid awards and see how schools stack up based on graduates' salaries, debt and other measures, go to And in order to report any confusing award letters, send an email to:

• Calculate net cost. First, total up tuition, room and board for all of the colleges on the student's list.

To calculate the full cost, add in other expenses. Students at four-year colleges spend an average of $1,210 a year on books and $1,060 on transportation, according to the College Board. Other extras to watch out for include materials and lab fees, parking and health insurance, though schools sometimes will let you opt out of health coverage if your child is covered by your insurance plan.

If some costs aren't clear, families should check the college's website or ask the admissions office.

The next step is to subtract for each school any grants and scholarship offers from the total cost. That will provide a so-called net price, including any borrowing, for each school.

Chris Noah, an advertising executive who lives in Middletown, N.J., ruled out several schools that accepted his son, Derek, because the net price wasn't competitive. Derek, now a high-school senior, plans to attend Allegheny College in Meadville, Pa., and major in environmental studies.

A $15,000 merit scholarship made it "much more doable," Mr. Noah says.

• Estimate the cost over four years or longer. Many families overlook rising costs after a student enrolls. The average sticker price of tuition and fees at private, nonprofit colleges has jumped 13% since the 2007-08 academic year, even after accounting for inflation, and by 27% at public four-year schools, according to the College Board.

Some schools are trying to rein in cost increases—or even freeze tuition—but past price increases can provide a general estimate of what you can expect, says Brian Zucker, a consultant who works with colleges on pricing strategies.

To be safe, families should calculate costs over four and five years, because many students take more than four years to graduate. Just 53% of students at nonprofit private schools and 31% at public colleges graduate in four years, according to the Department of Education.

Cole Schenewerk, pictured with his father Greg, works on his coin collection. ENLARGE
Cole Schenewerk, pictured with his father Greg, works on his coin collection. Sandy Huffaker for The Wall Street Journal

If you can barely manage in the first year, "you should be very cautious about accepting," advises Bonnie Kerrigan Snyder, a college consultant in Lancaster, Pa. At many schools, freshmen receive more of their aid in the form of grants than seniors, she notes.

All told, about 50% of colleges front-load grants, meaning freshmen receive more of their aid as grants than seniors do, Mr. Kantrowitz says.

• Scrutinize the fine print on merit awards. Many schools offer generous "merit aid" to high-achieving students in an effort to meet enrollment goals and boost college rankings. But most offers aren't adjusted for inflation. Some are good for only a single year or require that the student meet other requirements.

Families should ask colleges what happens to the award if costs increase and whether there are any conditions for renewal.

Another question to ask: What happens to the aid package if the student receives outside scholarships? Colleges typically reduce financial-aid packages proportionately for students who win outside scholarships, but they can do it by cutting loans, grants or both.

• Balance prestige and cost. Some students, like Chandler Walsh, a senior in Berlin, Mass., are confronting a choice between a cheaper school and one with a better reputation. "I could go to some schools and not have to worry about money, and some schools where I would worry a lot," she says.

Dean Skarlis, president of the College Advisor of New York, which works with families on college admissions and aid, advises families facing this dilemma to weigh costs over four years. "Is this place $22,000 times four better?" he asks. "It forces them to clarify why one school is better than the other."

Mr. Kantrowitz recommends selecting the better-regarded school if the difference in net price is $1,000 or less. If the gap is more than $5,000, "go with the cheaper school," he says. Students who borrow heavily are less likely to attend graduate school, might be under pressure to choose a job that pays better over one for which they are better suited and are more likely to struggle to repay their college debt, he says.

• Manage borrowing. As a rule of thumb, total student debt at graduation—including parent loans the student is expected to repay—shouldn't exceed the student's annual starting salary at graduation, Mr. Kantrowitz says. Parents shouldn't take on more debt—for all of their children—than they can afford to repay within 10 years or by retirement, whichever comes first, he adds.

Federal loans are the safest option because they contain special protections and repayment options, including income-based repayment, says Lauren Asher, president of the Institute for College Access and Success, an advocacy group. Subsidized Stafford loans are particularly attractive, partly because interest doesn't begin to accrue until the repayment period begins.

Families planning to take out federal Parent Plus loans should apply as soon as they can to be sure they qualify. Rejection rates have increased since the federal government tightened lending standards for Parent Plus loans last fall.

Beware of aid offers that include private loans "because it means you can't borrow enough from the federal government," advises Nancy Coolidge, associate director of student financial support for the University of California system. Federal rules generally limit undergraduates who are dependents to $31,000 in government-backed loans.

• Appeal inadequate aid offers. "If your financial-aid package isn't what you expected, there is absolutely no harm in going back to the financial-aid office and letting them know this isn't what you expected," says Justin Draeger, president of the National Association of Student Financial Aid Administrators.

To bolster your case, document a change in family circumstances, such as a job loss or large medical bills, or a major expense that doesn't show up on your financial-aid form, such as the cost of caring for an aging parent.

Mr. Skarlis says one client nabbed a larger award by showing that a property sale that generated a large capital gain was a one-time event. An offer from a competing school also might work in your favor, particularly if your child's test scores and grades are in the top 25% for that institution, he says.

• Focus on outcomes. A record 88% of last year's incoming freshmen cited the ability to get a better job as a "very important" reason for attending college, according to a national survey released in January by the Higher Education Research Institute at the University of California, Los Angeles.

For a sense of outcomes, families should look at a college's four-year and six-year graduation rate, loan-default rate for its students, average debt loads and the pay for recent and midcareer graduates. Families can find this type of information on websites such as College Navigator (, the Institute for College Access and Success's College InSight ( and PayScale (

Families also should keep an eye out for mitigating factors. High average debt loads are less troubling if few students borrow. Liberal-arts graduates might have lower starting pay but earn more over time. What's more, salary figures don't account for students who go on to graduate school. The least-selective schools, meanwhile, are likely to have lower graduation rates.

Some schools voluntarily provide average debt at graduation, while in other cases, the only information available is debt at the time borrowers enter repayment, whether or not they have graduated. That can understate borrowing at schools with high drop out rates.

Families also should ask what the college does to help students burnish their resumes and interviewing skills, how many students go on to graduate school and where they study, and which employers come to the school to recruit, says Deborah Fox, a San Diego financial planner and founder of Fox College Funding.

Eli Castronova, a real-estate executive in Scottsdale, Ariz., says his daughter, Naomi, now a freshman, chose Barrett, the Honors College at Arizona State University, in part because 70% of its graduates go on to graduate school.

"You need a graduate school specialty to excel in the workplace, and we have finite resources," he says. Barrett is "known for helping its students prepare for and pursue postgraduate studies."

Write to Ruth Simon at

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