Paying for College: The Basics of College Costs

The cost of higher education has become an even hotter topic in recent years. News outlets feverishly cover the political jockeying around student-loan forgiveness and provide an avalanche of college cost-benefit analysis statistics. In 2024, a New York Times article reported that annual college costs were on the threshold of six-figure territory for some highly-ranked schools. While those may be extreme examples, for now at least, understanding even more typical college costs and financial aid can seem overwhelming.

For almost the past 50 years, college costs have typically outpaced inflation. According to the National Center for Education Statistics, the average four-year annual costs billed by colleges (total tuition, fees, room and board in 2022-23 dollars adjusted by the Consumer Price Index) went from $12,106 in 1980-81 to $30,884 in 2022-23. However, college costs have declined a bit relative to overall inflation since the COVID-19 pandemic. Unfortunately, this relative decline can be attributed to unusually high overall inflation in that time span, rather than the actual dollar amounts reversing course.

The silver lining for college costs lies in the fact that many students do not pay the “sticker price.” This reprieve is found especially at selective, private colleges with large endowments. At Harvard where the 2024-25 billed costs total $82,866, about one in five students pay nothing and 55% receive need-based scholarships. In quite a few cases, elite private schools end up being less expensive than a student’s in-state public university option.

Usually released each Oct. 1 for the school year starting the following fall, the FAFSA (Free Application for Federal Student Aid) form is administered by the federal government to determine eligibility for federal student loan and grant programs. More importantly for most families, the FAFSA can be shared with individual college financial aid offices to determine need. In addition to the FAFSA, more than 250 institutions (listed here) also require the CSS Profile, which provides more detailed financial information.

Formerly known as the EFC (Estimated Family Contribution), the SAI (Student Aid Index) is the primary result of the FAFSA calculations. The name was changed in 2023, because families incorrectly assumed that the EFC would always be the dollar amount they would be expected to pay annually. In reality, that held true in some cases, but it depended on the college and other factors. The best way to estimate the Cost of Attendance (COA) for a potential college choice has always been through the Net Price Calculator on the college’s own website. A web search for “net price calculator” and the college’s name should easily provide the link. The Net Price Calculator involves plugging in your family’s basic financial numbers to get an estimate of likely aid at that specific institution. The result is an estimate, rather than a guarantee, but it is typically accurate for families with fairly straightforward financial situations.  

Financial Aid Glossary

Cost of Attendance (COA): Itemized by tuition, room, board and other categories, the Cost of Attendance is the estimated annual cost of attending a particular college full-time. Beyond financial aid, these figures determined by each college are used in setting IRS qualified expense allowances from college savings accounts such as 529 plans. When living off-campus, for instance, the listed housing figure is the maximum cap that can be a qualified housing expense paid out of a 529.

CSS Profile: Administered by the College Board, which also handles the SAT and AP tests, the CSS Profile is similar to the FAFSA. Compared to the FAFSA, the CSS Profile asks for more extensive information such as the value of a family’s primary residence.

EFC (Estimated Family Contribution): Calculated through the FAFSA prior to 2023, the EFC is now known as the SAI (Student Aid Index) to reflect its purpose as a measure of a family’s financial standing, rather than an expected cost dollar amount.

FAFSA (Free Application for Federal Student Aid): The FAFSA is a form filled out annually to provide a family’s financial information based largely off of the most recently filed tax return prior to the release of the form. Since the form comes out on October 1 in the year prior to the fall of the academic year for the potential financial aid, the tax-return year is actually two years before the starting year of the schooling. For example, financial aid in the 2024-25 academic year is based on the 2022 tax return. If a family’s financial situation has changed significantly in the interim, contacting each school’s financial aid office is recommended.

Merit Aid: Given to particularly promising applicants regardless of financial need, merit aid scholarships can significantly reduce a student’s Cost of Attendance. While the eight Ivy League schools are quite generous with need-based aid, they do not give any merit aid. On the other hand, universities wanting to increase the academic caliber of their student bodies offer merit aid to attract top students.

Need aware: As the opposite of need-blind, need-aware colleges take financial need into account when making admissions decisions. As a result, full-pay students could have a slight advantage. Some schools state they are need-blind to a point, but may be need-aware when finalizing their acceptances for those students “on the bubble.” Similarly, certain schools may be need-blind during the normal admissions cycle, but become need-aware when accepting students off the waitlist.

Need-based Aid: Based on the FAFSA, plus the CSS Profile in some cases, need-based aid is meant to fill the gap between the Cost of Attendance and the amount a student pays each year. The best need-based aid is labeled as scholarship or grant money that does not need to be repaid. Need-based financial aid packages may also include loans and on-campus work-study programs.

Need blind: Need-blind colleges do not take financial need into account when making admissions decisions. About 25 mostly elite universities are need-blind and guarantee to meet all of a student’s demonstrated need through scholarships, grants and work-study jobs without loans. A larger group of need-blind schools guarantee to cover all need, but the financial aid package may include some loans. A third category of need-blind colleges do not consider financial need in the admissions process, but they simply do not guarantee to meet all of a student’s financial need.

Net Price Calculator: Usually found on a college’s own website, the Net Price Calculator gives an individualized estimate of a family’s expected costs and financial aid package.

SAI (Student Aid Index): Based on the FAFSA, the SAI is subtracted from the Cost of Attendance to determine a student’s financial aid eligibility. However, whether a college actually provides a financial aid package equal to the SAI figure depends on the school.