Commentary: Student financial aid in higher ed — a few things consumers should know

There are about 4,700 colleges and universities in the U.S. and perhaps the most important question for prospective students and parents to consider is: How much will a four-year degree cost? In today’s competitive higher education marketplace, the answer to this question is not simple, particularly in choosing a private, nonprofit university.

Having spent over 30 years in the private sector as an executive of a major corporation and over 12 years as a business dean at three universities, and now as president of Woodbury University in Burbank, I am still flabbergasted at the complexity of the financial aid system. What other business entity continuously discounts its product or service by 40 to 50%? What other business has a permanent “Sale” sign on its retail store or website?

My main concern is for first-generation, under-represented and low-income students and their families who may not be knowledgeable of the intricacies of student financial aid. For example, how can net tuition be often about 10% of gross tuition? Again, no other industry has this kind of discount!

The problem is that it is not easy to understand the array of grants and scholarships that are available, especially for students with high academic credentials. So prospective students and parents, here is a primer.

The first step is to complete the Free Application for Federal Student Aid, better known as FAFSA. This is a must, since this application is the first step in obtaining university-sponsored scholarships even though a family may not qualify for federal aid because of their household income. To use an example at our university, a freshman domestic student with a GPA of 3.5 or higher automatically receives a university-sponsored Merit Scholarship of $18,000 per year, or an automatic discount of about 47%. This same student, if eligible for federal and state financial aid and if the family qualifies for a Zero Expected Family Contribution (again, completing the FAFSA is essential), would receive in California a total financial aid package of over $34,000, equivalent to an 88% discount from the gross tuition. So going back to the analogy of a retail store or website, in this example you pay only about 12% of the gross sticker price in net tuition.

But the financial decision does not end here. Question: Is it better for that student who meets the eligibility requirements mentioned above to spend 12% of, say, $40,000 of the gross tuition ($4,800 per year) at a private university or free tuition at a public university?

The answer to this question depends on how many years it takes to graduate. Namely, if the student graduates in four years at a private university, the cost is four times $4,800 or $19,200. But it may take six years for the student to graduate at a free public university because of the shortage and large sizes of the classes. If the student earns, say, $50,000 per year on graduation, the extra two years of salary ($100,000, before taxes) could easily pay off the $19,200 cost of the private university and, thus, is the better return of investment in time and money.

So the bottom line for prospective students and parents: You need to be careful to compare the net cost after financial aid; and determine the rate of return before making a final decision on an educational institution.

But let’s not forget the “soft side” of a university education. The college must value educational excellence and provide an environment that is conducive to developing the internal self, including soft skills like empathy and the ability to communicate, which are crucial in today’s team-based work environment.

David Steele-Figueredo, Ph.D., is president of Woodbury University in Burbank. Born in Venezuela of Latino heritage and as a seasoned corporate executive, he has gained wide experience on the influence of culture and education on social issues.