Each day I see a new college “free” under 200k in income. This seems to be a rapidly growing trend the past couple of years.
While it is true that many are select colleges, and you need to be accepted, what is motivating this offer suddenly by so many?
I believe this may be one of the main drivers:
The BBB changed the endowment tax rules to implement a tiered rate system (reaching as high as 8%) based on a college’s per-student endowment. By offering more generous financial aid, colleges spend more of their endowment and reduce their per-student endowment, which can move them into a lower tax tier, or even exempt them entirely if the figure drops below $500,000 per student.
This is my theory. There could be other drivers, including peer pressure after some of the most prestigious schools started the trend.
Image, in some cases need aware stays and like Wake a high full pay component, and perhaps agreement with states (like Wake and NC residents). They likely have asset qualifiers too.
Perhaps the high stock market has enhanced endowments.
In conjunction with this, I’m pretty sure most of the schools offering free tuition to students with family incomes under 200,000 give the now standard caveat of “with typical assets” and also have relatively few applicants applying under that income threshold (that get accepted).
It’s great publicity for relatively little cost, as well as potentially getting more highly qualified applicants to choose from while fulfilling the BBB endowment tax rules.
Yes, I do sound super cynical. Or realistic depending on your viewpoint.
Are there really many colleges that say the COA will be completely free for families with incomes up to 200K? I was under the impression that the handful of colleges that offer free tuition at such high levels of income are still expecting families to pay for room, board, health insurance, books, travel, fees, and the various other expenses that make up the full cost of attendance.
Maybe it’s because the cost of attendance at many colleges is approaching $100,000.
Maybe it’s because some of these “free” colleges are tuition free only.
Maybe it’s because $200,000 doesn’t buy what it used to.
Seems that this is “free tuition with parent income up to $200k and typical assets” at a small number of good-financial-aid colleges. This really is not that many colleges.
Here is what Harvard says:
<$100k family income with typical assets → full ride
<$200k family income with typical assets → at least tuition covered by financial aid
It helps to name specific colleges and specific details. Extremely few colleges are $0 cost to parents for families making under $200k. However, some may offer FA that is the equivalent of no tuition or similar (still have to pay 5 figures for room, board, supplies, …).
Offering substantial FA to not high income families is not a new thing. It’s been occurring for decades. I believe the original start involves Congress pressuring super high endowment colleges to spend a larger portion of their endowment. Some started dramatically increasing both sticker price and financial aid. Students with low income paid nothing, students with middle income paid similar/less than publics, and students with very high income paid the inflated sticker price.
The average (after FA) tuition + room + board + … per student received by the college was the same, so financials worked. The colleges were spending a larger portion of endowment on the increased FA, so Congress reduced some pressure. Free for low income and no tuition for middle income had good optics and was popular with the public, so marketing was happy. The only negative was for the very high income families who pay sticker price that is increasing faster than inflation; and there has been no shortage of wealthy families who would gladly pay near $100k/year for Ivy+ type colleges. If anything popularity among wealthy families has increased as sticker price has increased, sort of like a Veblan good.
Usually 200K family will have some assets, and will likely not be 100% tuition free. It may depend on how the schools change the weight on asset, and there may be a big jump with or without assets.
Very interesting take.
To me it comes down to the final number. I don’t care how I get there.
It’s like when students get these great merit packages but the school is still to expensive for their families. 
Free tuition
As others are suggesting, the difference between this and what their formulas were already doing for families near those income levels with “typical assets” is not necessarily large, particularly when you consider the other charges besides tuition. So the actual budget impact of all this may not be very large.
And the word “free” definitely generates some positive marketing.
That said, these colleges do compete, and I think anything that one such college does that makes aid more generous even marginally for some families puts competitive pressure on peer institutions to do something similar. And price competition is generally pro-consumer, so that’s good.
Are there any schools ( other than princeton ) offering this for families making 250k or less?
I am not aware of Princeton claiming to be free tuition for families making under $200k. Net price using Princeton’s NPC is below. I entered $0 assets from both parent and student, so this is a lower estimate of price. Families with significant assets will pay more. I used an AGI = 85% of gross.
$300k Income – Net Price = $92k/year (sticker)
$250k Income – Net Price = $78k/year
$200k Income – Net Price = $55k/year
$150k Income – Net Price = $32k/year (similar to no tuition)
$100k Income – Net Price = $9k/year
A Google search mentions the following colleges making a $200k type claim – MIT, Penn, Harvard, and Emory. Harvard’s NPC is especially quick to use, so I’ll use Harvard as an example. With under $100k assets and no other kids in college, I get the following. If non-retirement/primary home assets are >$100k, parents are expected to contribute 5%. I expect >$100k assets is common for persons with $200k income. Students are expected to contribute 5% of assets above $5k. Another kid in college generally reduces cost by 20-25%, below these numbers.
Note that it is not a hard threshold, such as $199k gets big discount and $250k does not. Instead it’s a sliding scale, such that $250k income pays $19k/year more than $200k income, with assumptions above. I expect the others on the list work the same way.
$330k Income – Net Price = $91k/year, 28% of income (sticker)
$300k Income – Net Price = $75k/year, 25% of income
$250k Income – Net Price = $49k/year, 20% of income
$200k Income – Net Price = $30k/year, 15% of income (similar to no tuition)
$150k Income – Net Price = $16k/year, 11% of income
$100k Income – Net Price = $9k/year, 9% of income
“Free tuition” does not include room and board and fees
These announcements are just marketing increases in aid due to inflation. Whether or not the 200k income family will get aid is going to depend in part on their assets.
It would be interesting to know how much aid the $200k with typical assets family got the year before the announcement compared to what they get the year after the announcement to be able to assess how much of a change the new policy actually is. As others have indicated, I suspect they likely are offering more aid to those families post-announcement, but think it is likely not significantly more than they were before.
Princeton announced about a month ago that most families with income under $250k would not pay tuition. I have not run their NPC again to check but at that time I remember running the NPC for around a $200k income with modest/average savings and it came in under $13k (compared to a lot of other schools that came back between $40-$60k for those same numbers). I’m surprised to see you got the numbers above.
Princeton already updated its NPC, and you may play around to compare.
I am also a little surprised since the Princeton NPC (as well as the actual financial aid package awarded) were the most generous out of all the meets need schools that my daughters considered. I would have thought this summer’s announcement would have led to even more generous packages, but every family’s finances are different so I am sure it depends on the specific mix of income, assets, and number of siblings in college.
I just ran it again out of curiosity and am still getting just under $13k net price for a $200k AGI so the same result that I got a month ago 