Tips for choosing the best ‘financial fit’ college

Shelly Gigante

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Mar 8, 2021

Your hard work in high school has paid off, as evidenced by the collection of college acceptance letters you received. A job well done! Your mission now is to decide which campus to call home for the next four years, a decision that is both highly personal and fraught with financial implications.

If you choose the safety school with the biggest scholarship, you could potentially graduate with little to no student loan debt and apply those savings to your graduate degree or a future mortgage. But, you may not feel challenged academically and may find it harder to relate to your peers.

On the other hand, if you opt for the most prestigious school that offered no financial aid, you may benefit from networking opportunities or better job offers, but you could saddle yourself with a six-figure loan. Graduating with a heavy debt burden could also affect where you attend graduate school, if that’s part of your plan, since there is a limit to how much you can borrow.

“We cannot dismiss the importance of financial aid,” said Robert Franek, editor-in-chief of The Princeton Review. “I don’t care how much financial wherewithal parents have; the word tuition sends shivers of fear down everyone’s spine.”

When May 1 approaches, aka National College Decision Day, college experts and financial planners offer sixsuggestions for ferreting out the best fit school at a price you can afford:

Here’s a closer look at each recommendation.

Compare your financial aid offers carefully

Each of your college acceptance offers will include a financial aid package, which outlines your net cost of attendance. Those will vary from school to school and may include a combination of need-based grants and scholarships, low-interest federal student loans, and work-study opportunities, which guarantee an on-campus job.

Be sure that you understand the difference in the types of financial aid you receive. Grants and scholarships are essentially free money that does not need to be repaid, while federal and private loans must be repaid with interest after you graduate. (Related: Paying for college with Direct student loans)

To calculate your net cost for each school, start with the published cost of attendance, also called the “sticker price.” That should include both direct expenses paid to the college, such as tuition and fees, and indirect costs, including housing, food plan, books, and estimated transportation. Next, subtract any grants and scholarships (free money) or work-study offers that you have received. The balance is your out-of-pocket cost which you will have to cover through personal savings or loans.

Your assessment of out of pocket costs does not stop there. Look carefully at the types of loans you would be required to assume at each school. Some may offer more low-interest federal loans, while others may require you to take on private loans, which can be more expensive and offer less flexible repayment terms.

The College Board, which administers the SAT and AP tests, offers an online financial aid award comparison tool that allows you to compare offers side by side.

For many students, the cost of attendance is the barometer that will dictate which schools they consider and which they weed out. Remember, though, that the college you select should be a fit not only financially, but culturally and socially as well, said Franek. Do in-person (where possible) campus visits and online tours, talk with current students, and research all you can about classroom size, dorm room layouts, dining hall options, and the type of students who tend be most engaged on their campus. (Learn more: College shopping: Big fish or big pond?)

“I can’t emphasis the importance of campus culture enough,” said Franek. “If you are a student who has strong political views, are religious, or identify as LGBTQ, for example, you want to be sure you are in a setting where you can be healthy and safe and feel supported while still exposing you to civil discourse with others who may have different beliefs than you.”

Don’t be afraid to appeal for more aid

If your top choice school did not give you the financial aid package you need, though, don’t just scratch it off your list without a fight. Contact their admissions office to ask for more. It can’t hurt.

“I always recommend that students have a conversation of substance with the admissions representative or financial aid office if they did not get the package they wanted,” said Franek. “Not in an attempt to game the system, but simply to tell them, ‘listen, you are my first-choice school, but we can’t make the numbers work on our side.’”

Let them know, politely, that you have other options from comparable schools that provided more financial aid, if that’s the case, and ask if there is anything more they can do to reduce tuition costs, he suggests. (Related: What high schoolers should know about college loans

Be prepared to put your appeal in writing and show evidence of other offers.

Discuss college costs (and obligations) with your family

Unfortunately, finances remain one of the last taboos in many American homes. That only creates added stress when choosing colleges.

“I have come across families that treat financial discussions with children as taboo, and I believe that is a detriment to the growth and development of the child,” said Christopher Stappas, a financial professional with Summit Financial in Parsippany, New Jersey. “Parents should get their kids engaged and make them part of the financial discussion around college. Try to provide them with some perspective about the cost and sacrifices involved.”

You might, for example, share with them that the annual cost for this school is 50 percent of what you earn after taxes after working for a full year. If you plan to help pay for their tuition, you can then add, “We certainly want you to have an amazing college experience, but we just want you to be aware that the family will have to make sacrifices for you to have this experience,” said Stappas.

Parents should be candid with their children about how much (if any) they are willing to contribute to their college tuition. Those who can afford to pay full fare may still expect their children to contribute to their tuition, or assume some student loans, to ensure that they have at least some skin in the game. Those expectations must be made clear so their child can make an informed financial decision.

“I think that the expectations and outcomes will depend on how you frame the discussions with your child,” said Stappas. “Ask the child open-ended questions such as: ‘What are you willing to do to help the family send you to this school?’ And then follow up with: ‘Is there anything else you can think of to help?’ You may be surprised to hear what they are willing to do without first hearing a suggestion from you.”

“It’s not a matter of ‘are you willing to work,’ but ‘how much are you willing to pay’?” said Stappas, suggesting children talk specifics about how they will spend their summers earning tuition money. “I really think this taboo about talking about money is to all our kids’ detriment. Parents all want their kids to have nice things, but they also need to teach them that they can’t get everything they want. There is a cost.” (Calculator: How much do I need to save for college?)

Parents can also help their children minimize student loan debt by discussing opportunities to cut the cost of an undergraduate degree down to size. For example, they can start off at a community college and transfer to a four-year university (and earn the same degree for a fraction of the cost), commit to an in-state school, earn college credit while still in high school through Advanced Placement classes and dual enrollment at local community colleges, or “level down” to a less prestigious school where scholarship awards may be more generous. (Learn more: 6 ways to cut college costs in half)

Students can also slash college costs by graduating in four years, said Francine Block, president of American College Admissions Consultants. “It may appear to cost less to attend a very good public university, but compare their graduation rate with the more expensive private schools,” she said. “If you will be attending the state school for five or six years in order to get your undergraduate degree, have you saved money versus getting out of a private liberal arts school in four years?”

She notes that the federal government does not require public schools to report their four-year graduation rate and many only report their six-year rate.

“Private schools usually make their four-year graduation rate available because they do everything they can to help students, even those who change majors, be able to graduate in four years,” Block said. “That is something that should be considered.”

Review career services

Some schools are better than others when it comes to cultivating professional success.

According to Franek, prospective students should look closely at each school’s career services program to determine how adept they are at helping their graduates find jobs. Do they help them find internships, encourage research opportunities while still in school, or connect students with faculty mentors for future recommendations?

“Even if you do not intend to be a doctor or a lawyer, ask where their students get into medical or law school, which can give you a good idea of whether the school has a good reputation,” Block agreed. “And most importantly, ask the admissions office about their career center. Where are they placing students in internships? What career fairs do they host?”

Perhaps they bring their political science majors to Washington, D.C., to meet with alums on Capitol Hill or connect current students with former graduates for research-based internships.

It’s not enough to learn that the school holds three career fairs a year, said Block.

“You want a list of actual companies that are coming to these fairs,” she said. “Are these national companies you may want to work for or are they mostly local or regional companies?”

That is particularly important if you attend school out-of-state and hope to move back home after college, or plan to relocate to, say, New York. 

As you compare the colleges to which you were accepted, do campus tours (in person or virtual), connect with current students, review their ranking and four-year graduation rate, and do your own research on the most popular majors offered. It’s a big investment. You want to be sure it checks all the boxes.

Check the school’s financial health

Lastly, prospective students who are preparing to commit to a college during the pandemic (and its aftermath) should consider the school’s financial health, especially those exploring smaller liberal arts schools.

Why? COVID-19 dealt a costly blow to colleges and universities nationwide, many of which lost millions of dollars in room and board fees and from students who opted to take a gap year. Smaller colleges that were already struggling to remain afloat may be forced to close their doors or merge with another school in the coming years, according to projections.

A 2020 model developed by Boston startup firm Edmit and nonprofit think tank New America found that more than a third of private four-year colleges in the U.S. are financially vulnerable. The data, which analyzed 17 years of revenue from tuition, return on investments, expenses, and the size of tuition discounts at 937 colleges found that 345 were considered “high risk” — meaning that if current financial trends hold, they would be able to survive at most for six years. The model further predicts that the effects of the pandemic would reduce the life span of the average college by 22 years.

While larger public state universities typically have adequate funding and many of the more elite private schools have large endowment funds to sustain them, the financial outlook for smaller private liberal arts schools is potentially more precarious. An endowment fund is a pool of assets made possible through donations, which are used to provide scholarships, limit tuition hikes, and invest in facility upgrades.

Generally speaking, the bigger the endowment, the better a school’s financial health. Absent context, however, the endowment size may not mean much.

College Raptor, a college planning website, suggests prospective students research the “endowment per student.” A university with a $2 billion endowment and 20,000 students, for example, would have $100,000 per student. A college with a $2 billion endowment and 1,700 full-time students, by comparison, would have a per-student endowment of just over $1,000,000. Should those endowments earn roughly 5 percent per year, the college with a $100,000 per-student endowment would earn $5,000 per student, while the college with the $1,000,000 endowment per student would earn over $50,000, allowing them to potentially subsidize a $50,000 per-year tuition without losing money.

Research the return on investment

With annual tuition hikes continuing to outpace inflation, you may be wondering whether college is worth the cost. You are not alone.

According to the College Board, the average published (sticker) price for tuition, fees and room and board at public four-year colleges for in-state residents is roughly $26,820. Private non-profit four-year colleges cost an average of $54,880 for tuition, fees, and room and board. Most students pay less than the sticker price after factoring in financial aid in the form of grants and scholarships.1

As you start writing those checks, it may help to learn that continuing your education beyond high school generally does result in higher lifetime earnings. (Related: Is student debt worth it?)

A 2020 survey by Northeastern University found that workers with a bachelor’s degree have median earnings of $64,896, with an average unemployment rate of 2.2 percent. Those with a master’s degree have median earnings of $77,844 with a 2 percent unemployment rate, and those with a professional degree earn a median $96,772 with an unemployment rate of 1.6 percent. The highest earners, those with doctorate degrees, command median earnings of $97,916 and have the lowest unemployment rate at 1.1 percent.2

For those with limited resources who intend to continue their education beyond a bachelor’s degree, however, Block has one suggestion: Put your money into a brand-name graduate degree.

Indeed, there is a limit to how much you can (and arguably should) borrow for your education. If you max out on your undergraduate degree, you could be forced to attend a less reputable graduate school. A better graduate degree paired with a less impressive undergraduate degree could potentially give you a competitive edge in the job market, said Block, as employers flipping through resumes see the most recent degree first.

If you’re curious about the colleges with the best return on investment (ROI), Georgetown University’s Center on Education and the Workforce did the math for you.

Key findings:

  • Bachelor’s degrees from private colleges, on average, have higher ROI than degrees from public college 40 years after enrollment.
  • Community colleges and many certificate programs have the highest ROI in the short term, 10 years after enrollment, though returns from bachelor’s degrees eventually overtake those of most two-year credentials.
  • The median ROI of liberal arts colleges is nearly $200,000 higher than the median for all colleges.
  • The 40-year median ROI of liberal arts institutions ($918,000) is close to those of four-year engineering and technology-related schools ($917,000), and four-year business and management schools ($913,000.)

Conclusion

College is an exciting time for young adults. It is also one of the biggest financial commitments you will ever make. Before deciding where to matriculate, take the time to compare your financial aid offers carefully, don’t be afraid to ask for more aid, discuss financial expectations as a family, and dig deeper into what each college you are considering does to help their graduates find jobs.

Discover more from MassMutual…

A primer on college financial aid

7 tips for applying to college during COVID

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College Board, “Trends in College Pricing and Student Aid 2020,” October 2020.

Notheastern University, “Average Salary by Education Level: The Value of a College Degree,” June 2, 2020.

The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.