The economics of deciding where to go to college

Once you (or your child) are accepted into college, you'll receive a financial aid package from each school (assuming you applied for financial aid - and why wouldn't you?). It turns out, though, that while the application is standardized, financial aid packages aren't.

According to this LA Times article, all financial aid packages are different. Some of the schools offer scholarships without stating whether they are renewable after the first year, some list loans without providing any details about the loans themselves, and some list "student employment" as a source of aid. And figuring out the "net cost" of attendance isn't easy because determining the cost of attendance at each school can be tricky, even if the school provides an estimate (and some don't).

But estimates are all you have to work with. So add up the fixed expenses (tuition, fees, and room and board if your child will be living in a dorm). Then try to estimate the discretionary expenses, using the school's estimate as a guide (this includes books, food and rent if your child will be living off campus, transportation costs, etc.). And both numbers to get the total cost of attending the school. You'll probably get a different total for each school.

Add up the amount of scholarships and grants - these are funds that don't need to be repaid. Don't include loans. Subtract the amount of scholarships and grants from the total expenses you calculated earlier. This number is your "bill" for the year, and the number you should use to compare the costs of attending each school. Just make sure that the scholarships and grants are renewable, and that the conditions for renewal are realistic.

Should your child attend the school with the lowest cost? I don't necessarily think so, but that's an issue for another day.

How do you pay for the portion that's not covered by scholarships and grants? Hopefully you've saved money for this day, in a Coverdell ESA, 529, or other account. If not, or if savings aren't sufficient to cover the expenses, it's time to investigate student loans. Before you (or your child) take out a loan, make sure you understand all of the terms, and have a plan for repayment (which is also an issue for another day).