Net Price Calculator and Cost of College

Written by: Financial Aid Sense

Carefully comparing financial aid award letters is a very important exercise to do prior to deciding on which college to attend. Looking at the bottom line out of pocket costs gives families a sound idea of the “net price” of college. The Net Price Calculator is a handy reference tools that can guide families in determining actually bottom line college costs.

This important metric is referred to as the “net price” calculation. As of October 2011, colleges that award federal financial aid program funds must post a “net price calculator” on their website. The net price calculator provides college cost information and allows families to estimate their “net price” of college based on a student’s individual circumstances, such as program of study and total amount of awarded grants and scholarships. A net price calculator allows students to calculate an estimated net price of attendance at a particular college by reviewing the defined cost of attendance at that college and subtracting awarded grant and scholarship aid. That way a family can compare the net price of each of the schools that a student is accepted to and compare actual out-of-pocket costs.

All colleges administering federal financial aid funds are required to display a net price calculator, either the version furnished by the U.S. Department of Education, or a version offered by one of the various private companies that provide net price calculators.

Families should familiarize themselves with this tool on college websites. Although families need to do a detailed analysis of college costs and review the composition of actual financial aid awards carefully, the net price calculation allows the family to have an additional comparison point, or metric, to compare college costs. The net price figure is an important metric as it gives a family the true out-of-pocket cost amount if a student were to attend a specific college. The family can then consider the net price as well as the composition of the entire financial aid award to ultimately determine the most optimal financing options.

Here is an example of how to calculate the net price of college. If a college’s Cost of Attendance (COA) is equal to $44,000 and a student receives a total of $30,000 in grants and scholarships (gift aid) from that college, then the New Price of that college is equal to $14,000. The Net Price amount gives a family an idea of the actual true cost of college (Cost of College minus GIFT AID).

Net Price is the difference between a college’s cost of attendance and the total need-based and merit-based grants/scholarships awarded. Although an estimate, it is an important metric when considering colleges as the net price is the true out-of-pocket cost to the student to attend college.

For more information on comparing financial aid award letters, please refer to the article on this site Financial Aid Letter Award Comparison.

Financial Aid Sense is a practical guide about financial aid and the college financing process. Check out what readers have to say about Financial Aid Sense. This guide contains solid information about how to compare award letters and figure out bottom line costs, an important exercise when making final college decisions. Be sure to read the section about net price calculators!

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Jan Marie Combs, EzineArticles Basic Author