Beware college price hikes

Vanderbilt University recently made the news when a student reported receiving his estimated cost to attend for one year: $98,426.

Talk about sticker shock.

It made headlines because it’s such a high number, but really, Vanderbilt is not a maverick in the field of crazy attendance costs. Many other schools have all-in estimates of around $90,000.

Making it scarier, prices tend to go up each year. So, if you’re an entering freshman, you can expect to pay much more for tuition and room and board by the time you’re a senior.

What to expect for price increases

Estimating how much a school will cost in a few years isn’t an easy task. Covid threw a wrench in pricing; so schools held the line during the pandemic. Then rampant inflation hit, driving up the cost of everything from providing food service to hiring employees.

CollegeIQ shows the total cost of attendance for the past three years. You’ll notice that prices tend to go up at almost all colleges.

Consider a school that costs $90,000 today. Assuming a modest 3.5% increase each year, the school will cost $100,000 by the fourth year.

Impact on Scholarships

The increase can be magnified for those receiving merit scholarships. Most of these scholarships are fixed dollar amounts that do not increase along with tuition.

Consider a school that costs $90,000 today and offers a generous $30,000 merit scholarship for four years. That brings the first-year cost down to $60,000.

Unfortunately, if the topline price increases by 3.5%, the cost to the merit scholarship student increases at an even higher rate.

The total cost of attendance increased by 11% over the course of the student’s four-year enrollment. However, for students who entered paying $60,000 thanks to a merit scholarship, the net effect is an increase of closer to 17% because of the smaller base.

Consider price locks and freezes

Some schools offer ways to lock in your price as a freshman, giving cost certainty to incoming students.

For example, the University of California has a Tuition Stability Plan. It locks in the price of tuition and the student services fee for up to six years for incoming students. This includes the out-of-state tuition price, but it does not lock in the price of student housing, which is a big factor in the expensive state.

Some other schools offering a price lock include University of Illinois and University of Colorado.

Other schools offer the opportunity to lock in tuition prices by paying in advance.

Some schools offer price locks if you prepay either tuition or tuition and room and board, including Rochester Institute of Technology, Bryn Mawr College, and American University.

Many schools that offer prepayment price locks only offer them to students who do not received need-based aid since need-based aid can fluctuate from year to year. Be sure to read a school’s prepayment terms to ensure you can get a refund if you withdraw from the university for any reason.

Whether or not a prepayment plan makes sense requires some calculations and guesswork. Assuming you have the cash on hand to fund a prepayment plan, consider how much the school generally raises prices each year and the return you could expect to earn on the cash if you didn’t prepay.

Look forward to the next four years

Families usually look at the current price of a school and multiply it by four for financial planning. Clearly, that will underestimate the total cost of attendance.

Additionally, families should understand that life events such as a parent retiring or getting a big promotion will impact your financial aid. If your family starts making significantly less money, those tax returns might help increase your financial aid. Similarly, don’t jump for too much joy if you get a pay raise or big bonus. Colleges will factor these changes to your SAI when renewing financial aid offers.