Schools Making College More Affordable: Pricing resets, % of income, and other methods

[AustenNut]

I’m not disagreeing with you. I’m not talking about people with millions in the bank, whether from trust funds or who did FIRE.

I’m talking about a family where there are two working adults who have a household income of $200k/year, have $100k in an emergency fund, $50k for health care deductibles and car replacements, and a house (for purposes of this discussion, we’ll say a median-priced house which is about $400k or so). And since this is a more financially-conservative family, let’s say they have $100k in college savings.

Some places advertise free tuition for families with $200k in income and typical assets. The family above would not qualify because their assets are “atypical.” But if there was a family that earned $200k/year and spent every dime on “wants,” that family would qualify for free tuition.

This is where the offers from places like Whitman or Wheaton or wherever, come into play. Those two families (neither of which has millions in the bank) would both pay the same amount of money. The more fiscally-conservative family would be paying most of their costs out of the college savings that they had put aside in the previous years while the family that was more focused on “wants” would be paying it out of their annual income.

Whether you agree or disagree with that type of policy, it seems as though that’s what some of these colleges are heading toward.

[blossom]

Agree that the transparency is fantastic. Someone who has an inherited IRA with $75K in it (mom was a schoolteacher) who is looking at the “new” accelerated payout requirements but is otherwise a modest earner, and modest assets should be able to quickly see that indeed- they qualify for these capped programs.

[NiceUnparticularMan]

So I just ran that scenario at Penn, which is one of those under $200K promise schools. I used $200K in AGI, which of course means there could be more gross income for HSAs, 401Ks, and IRAs. They apparently also don’t consider much net home equity, but did ask, and so I assume that was $400K in net home equity, no mortgage.

Their fancy new cost calculator then said they would provide a $45,582 grant, and $3,500 in work study. Since tuition and fees were $73,978, this was indeed not free tuition.

Then again, it wasn’t full pay either. The expected family contribution not including work-study is right at $50,000, so obviously that is going to wipe out the college savings, and then they still need to come up with another $100,000 or so. This is with a modeled AGI of $800,000 over those four years, which again does not include deductible retirement savings. Of course they could in fact tap home equity as well, and would be nowhere close to normal borrowing-limit recommendations for a family with their income (basically, they are entering this hypothetical scenario with unusually low housing costs for a family like that).

So . . . I don’t see that as particularly unreasonable in substance. I do think the marketing of these “typical assets” sorts of programs might attract some people who then end up somewhat disappointed with their actual aid offers. But in the end, I think normally a family with $200K in AGI and an entirely paid off house should be able to find $12.5K a year in the budget for college costs.

All that said–if some colleges want to compete with Penn and the like for students from families like this on cost, great! Of course they already have been, through merit. But if they want to call it need aid instead, eh, not a problem for me.

[ucbalumnus]

@AustenNut

I’m talking about a family where there are two working adults who have a household income of $200k/year, have $100k in an emergency fund, $50k for health care deductibles and car replacements, and a house (for purposes of this discussion, we’ll say a median-priced house which is about $400k or so). And since this is a more financially-conservative family, let’s say they have $100k in college savings.

Some places advertise free tuition for families with $200k in income and typical assets. The family above would not qualify because their assets are “atypical.”

Average and median net worth by age | Fidelity lists average and median net worth by age. For age 45-54, the average net worth is $975,800, and the median net worth is $247,200. Presumably, one of these is what “typical assets” means.

[Data10]

@AustenNut

Most college students do not attend highly-selective private colleges. Most highly-selective private colleges reject over 90% of their applicants, even though a significant chunk of that 90% are likely to be highly-qualified applicants. So what happens to the rest of college students that don’t attend colleges with 10-figure endowments?

Most students also do not attend colleges with an $87k net cost sticker price, like Whitman. Instead most students attend public colleges with a far lower sticker price and corresponding far lower price for wealthy students than Whitman. I’d expect price for typical middle class students also tends to be lower for typical in state public students than at Whitman.

Regarding endowment, far more important for financial aid is endowment per student – not total endowment. By this metric, Whitman is on par with many Ivy+ colleges. Example numbers are below.

• Penn – $900k per student
• Duke – $700k per student
• Whitman – $600k per student
• Brown – $600k per student
• Johns Hopkins – $400k per student
• Columbia – $400k per student
• Cornell – $400k per student

Whitman also has a wealthy student body, similar to Ivy+ type colleges. For example, in the Chetty sample, Whitman parents had a median income of $225k (inflation adjusted), with 50% of families in top 10% income, and 17% of families in bottom 60% income. Whitman had fewer middle class families than Harvard in the Chetty sample. The Chetty sample is old, more recently Whitman had 17% of students with Pell grants compared to 19% for Harvard. This also points to fewer middle class families at Whitman than Harvard.

Whitman appears to follow something more similar to the Ivy+ type FA model for colleges with high endowments (per student) and a large portion of student body being wealthy students – charge a high nominal sticker price and give steep grant based aid discounts to that sticker price, extending discounts to both middle class families and a good portion of wealthy families. A key difference with this new change seems to be that Whitman gives the steepest discount for wealthy families and less generous FA for typical middle class families, compared to a good portion other high endowment per student private colleges.

In any case, the question that was quoted was instead clarifying what colleges you were looking for, in your question about assets threshold.

[Data10]

@Mwfan1921

I ran Whitman’s NPC for a family with $101k in income and low assets, and it showed a net COA of $21K in direct costs (tuition/fees/room/board) at Whitman, not $28K. I would not recommend using Whitman’s 10% tuition sliding calculator.

I agree this $21K is still higher than this family would pay at highly rejective meet full need schools. But those schools don’t accept a high proportion of students with that financial profile (middle class/non-Pell qualifying).

That’s a good point about cost being variable, rather than following the sliding scale. For $101k parents income, 1 kid in college, and no other discounts; I get the following net costs in the NPC.

$101k Parents Income with…

• $100k assets – $29k net cost
• $50k assets – $27k net cost
• $0k assets – $21k net cost

As noted in my earlier post, Whitman’s student body is quite wealthy. The Chetty sample suggests that highly rejective meet full need colleges often have a similar or larger portion of students in this type of middle class income/asset bracket than does Whitman. I don’t think this FA policy will change that.

[NiceUnparticularMan]

So filling out the Whitman NPC, I got around the same total grant aid as I got with Penn, although that was with $20K in academic scholarships (I tried to do a scenario where the applicants might be at least marginally competitive for Penn). EFC was close to $40K, though, reflecting that full pay is less at Whitman to start.

I’m not sure what this really means big picture, other than that at least in this scenario, Whitman would largely be competing on cost with Penn the “normal” ways–lower full pay COA combined with some merit.

[AustenNut]

@ucbalumnus

Yes, “typical assets” is one way that a financial aid promise can mean less than it appears, similar to “meet full need” when the college can define “need” however it wants.

Yes. UPenn and Whitman have different methodologies, which are likely different than what this user reported is occurring at Colby and St. Olaf, and different from even more schools.

@txfriendly

There are definitely hard cutoffs at some schools with these kinds of guaranteed free tuition programs, and I suspect at all of them - they just don’t publicize the number for whatever reason. For the current cycle, I was told by a Colby rep that their “typical asset” threshold for free tuition under 200k income is $500k in family assets including home equity, and a St Olaf rep told me that theirs is $200k excluding home equity. No idea what Yale’s is, but I’d bet they have one. And you may not always be able to reverse engineer the answer through NPC, as St Olaf admitted to me that their NPC is not sophisticated enough to handle the permutations of their affordability thresholds.

@ucbalumnus

Average and median net worth by age | Fidelity lists average and median net worth by age. For age 45-54, the average net worth is $975,800, and the median net worth is $247,200.

And although net worth includes home equity (which some colleges consider and others don’t) and retirement vehicles (which colleges do not consider, to my knowledge), I think this really helps folks to understand how financially fortunate many users on CC are in comparison with the rest of the country. Here’s the data shared by @ucbalumnus (which referenced the 2022 Federal Reserve Survey of Consumer Finances). As a reminder, the median is the 50th percentile.

Age of reference person	Average household net worth by age	Median household net worth by age
Under 35	$183,500	$39,000
35-44	$549,600	$135,600
45-54	$975,800	$247,200
55-64	$1,570,000	$364,500
65-74	$1,790,000	$409,900
75+	$1,620,000	$335,600

[Alqbamine32]

@Mwfan1921

Some schools definitely look at whether both parents are employed, or not…and sounds like you saw that too at one school.

Just to clarify, I was talking about K-12 schools which “penalized” 2 parent families with a stay at home parent. This was under the theory that the parent could have been contributed to the child’s tuition through bringing home an additional salary and chose not to do so. Now that I think about it, the language on the site was along the lines of that our financial aid budget was not intended to subsidize a household’s choice to be single income or work part time. The word subsidize jumped out to me at the time because it implied that the school was judging an applicant’s parent (usually a mother) for not having a full time job. I don’t remember seeing any similar statements on the websites of the colleges to which my kids applied.

[fiftyfifty1]

Thanks for this thread. I know a lot of families with “above typical” assets due to frugal lifestyles and aggressive savings. (I know exactly zero underemployed families who travel yearly to Bora Bora on trust fund $$ to squabble over who will receive the family Monets.) Maybe it’s a regional thing?

[gardenstategal]

I recall that some private K-12 schools near me looked at a family’s “choices” in allocating FA. If a stay at home parent had young children or was caring for parents, they didn’t expect them to work, but if that wasn’t the case, they might be “gapped” for what a job could provide. (This happened to a friend. She was quite salty about it.) They also asked about spending in order to be more understanding. (I.e., country club memberships aren’t essential expenses.)

The challenge with all of this is that there need to be standards - for a whole host of reasons - and they impose value judgments on consumption and life choices. People see things so differently and often have different situations. And if you were a well-prepared ant, it’s a little hard to see the grasshopper getting a good deal…