When you are looking at colleges, don't believe the sticker price.
Why? Because college are priced like airline tickets. Everybody pays a different fare. When I give talks to families with teenagers, that's one of the first points that I emphasize. It's your job then to find colleges and universities that are not only great academic fits, but also financial fits. And nothing can make a school more affordable than snagging a price cut.
More students capture price discounts through college grants than you might assume. The latest annual survey of the National Association of College and University Business Officers (NACUBO) illustrates just how widespread price cuts are among private schools. Freshmen starting at a private college or university in 2009 typically received a 48.5 percent tuition discount. NACUBO estimated that freshmen, who began school last fall, received a slightly bigger tuition break of 49.1 percent.
[Learn more about paying for college.]
Here's an example of how tuition discounts work: Let's say the tuition is $40,000 and a student received the equivalent of a 49.1 percent price break. In this case, the student got a grant (free money) from the school for $19,640. Over four years, this award would be worth $78,560. That's hardly chicken feed.
You shouldn't assume that only the students with the most stellar academic credentials get this money. According to the NACUBO study, nearly 88 percent of freshmen attending private schools received institutional grants, which is a historic high. I'd hate to be among the 12 percent of freshmen who ended up empty-handed when the grants were being distributed.
What you may also find interesting is that a big chunk of this money goes to students who don't need the help. Nearly 29 percent of the college grants were awarded to affluent students who did not qualify for any need-based aid.
[See why Americans are split on the value of a college degree.]
Many colleges and universities give price cuts to rich students because these teens are among the most highly desirable ones. As a group, these students are more likely to have attended top public and private high schools that have prepared them well for college. These students are also more likely to have earned higher GPAs and test scores, which count in U.S. News's college rankings system. Once in college, they are also more likely to graduate in four years.
There are, however, some notable exceptions to the rich-kids-get-money scenario. The wealthiest and most prestigious schools in the country—including the Ivy League institutions and the very top liberal arts colleges, as ranked by U.S. News—don't provide grants to rich students. As a practical matter, these elite schools don't have to use price discounts since wealthy families are flocking to these schools without them.
[Read about the college costs guessing game.]
The practice of discounting might seem puzzling to you. Why not just charge a lower price and skip a lot of this discounting? One reason why colleges don't revert to this approach is because families assume that schools that cost more must provide a better education. When you are shopping for a car, which do you think is the superior vehicle: Mercedes-Benz CLS-Class or the subcompact Chevrolet Aveo?
For you, the most important question will be this one: Will my child get a tuition discount from colleges? The great news is that answering this question will soon be easier than it's ever been. Beginning in late October, all colleges and universities must begin posting cost calculators on their websites—and many of them already have these calculators in place.