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Can't Afford Your Dream College? Think Again

By Matthew Frankel, CFP® – Mar 30, 2014 at 7:00AM

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The cost of attending a private college or university keeps going up and up, but so does the financial assistance available to help offset the burden.

Source: Free Cooper Union

When deciding what college you or your child should attend, the cost of attendance is probably one of the biggest factors in the decision. With some of the most expensive private schools in the U.S. costing close to $60,000 per year for tuition, fees, room, and board, many students and parents dismiss these schools as being prohibitively expensive and cross them off the list without giving them a second thought.

However, paying for your dream college may be easier than you might think. There is a lot of money available to students of private schools, both merit-based and need-based, that can make paying for a private education comparable to its public counterparts.

The "cost" of private vs. public colleges
The difference in costs between attending private and public colleges is a substantial one. Including tuition, fees, books, room, and board, the average in-state public university costs around $23,000 per year to attend, and this figure goes up by about $13,000 for out-of-state students.

In contrast, the average annual cost to attend a private institution jumps to just under $45,000 per year, and there are many that charge much more. In fact, there are 149 colleges and universities in the United States that charged more than $50,000 for the 2012-13 school year. Also, for the first time ever, one school (Sarah Lawrence College) topped the $60,000 mark.

But how much do students at these schools actually pay? There are two main types of financial aid available to college students, merit-based and need-based. As the cost of attending these schools is rising, so is the availability of both types of aid. In fact, the percentage of tuition paid by grant and scholarship money nationwide is at 45%, an all-time high.

Merit-based programs
Merit-based financial aid includes academic and athletic scholarships that schools use in an effort to entice the top applicants to attend their school.  There are a lot of private schools with deep pockets that pay out lots of money in merit scholarships each year, and the number keeps rising. According to a New York Times article, merit aid has grown so rapidly since 1995 that it now rivals the amount of need-based awards being paid out to students.

The awards themselves are substantial at some private schools. For example, the University of Miami awards merit scholarships to nearly 25% of its freshman, and the average award is over $23,000 per year. Tulane is even more generous, offering awards averaging more than $20,000 to more than one-third of its incoming students.

There are literally thousands of scholarship programs available to good students, some of which are offered by the schools themselves, and some offered by outside sources such as community groups, charitable organizations, and other various places. The Princeton Review offers some good advice here to use when starting your search and U.S. News publishes a list of schools that are the most generous with merit-based scholarships.

Need-based financial aid
This is a broad category, because it includes most federal student aid programs as well as money given by schools and other organizations to students who demonstrate a genuine financial need. There are many grant and loan programs available through the government, but many private schools do a great job of ensuring students will be able to afford to attend.

Many of the top-tier schools have financial aid structures which are almost exclusively need-based and are very generous. While it is a common misconception that Ivy League schools are extremely expensive (and they are, provided that the student's family can afford it), the reality is these institutions have deep pockets and their priority is to attract the best of the best, regardless of the students' ability to pay.

For example, Harvard University costs just under $60,000 per year for tuition, room, board, and fees, but not too many of the students actually pay this much. A full 20% of Harvard's incoming students' families earn less than $65,000, and these students receive a full financial aid package for the entire cost of attendance.  For students whose families earn between $65,000 and $150,000, the financial aid is still generous, as none of these families are expected to contribute more than 10% of their annual income.  In fact, according to Harvard's financial aid calculator on their website, a family earning $200,000 per year with two children in college would still receive more than $26,000 in annual financial aid.

The real cost
The key point to take away from this is to not get "sticker shock" when searching for colleges. Just like when buying a car, the price you see and the price you end up paying could be two totally different things.

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