Stanford just made tuition free for families earning less than $125,000 per year

1. Stanford University will provide free tuition to parents of students who earn less than $125,000 per year — and if they make less than $65,000, they won't have to contribute to room and board costs, either.
2. Students are still expected to pay $5,000 toward college costs from summer earnings and working part-time while enrolled in college.
3. The announcement is an expansion of Stanford's old financial aid policy, which previously applied to students from families making less than $100,000 per year.
4. Most universities can't afford to offer such generous financial aid to their students. But they could draw a lesson from the plan's simplicity.

How Stanford's financial aid works

If a student's parents make less than $125,000 per year, and if they have assets of less than $300,000, excluding retirement accounts, the parents won't be expected to pay anything toward their children's Stanford tuition. Families with incomes lower than $65,000 won't have to contribute to room and board, either.

Students themselves will have to pay up to $5,000 each year from summer earnings, savings, and part-time work. There's no rule that parents can't cover their students' required contribution.

Stanford is much more generous toward middle-class and upper-middle-class students than the federal government is. Most students who get subsidized loans and federal Pell Grants come from families making less than $60,000 per year. But it also enrolls an outsize proportion of wealthy students. In 2010, the university's director of financial aidsaid the median family income at Stanford was around $125,000.

On the other hand, only 14 percent of entering freshmen got federal Pell Grants in 2012, which typically go to students from families making less than $50,000 per year. Nationally, 41 percent of undergrads received Pell Grants.