Understanding And Comparing Financial Aid Award Letters

We’re very close to May 1st (National Decision Day) and thousands of students are trying to decide what college they will attend in the fall. One of the most important factors in choosing a college in this late stage of the decision process is cost. But, do you know how to read the financial aid award letters you’ve received?

One of the biggest mistakes that students and their families make when reviewing financial aid award letters is that they assume that the award letter with the biggest “award” total is the best. This is not always the case.

The main reason it is so difficult to compare financial aid award letters is because colleges are not required to use a standardized form. In 2012, the U.S. Department of Education asked colleges and university to use a “shopping sheet,” but it is not required at this time. Until all colleges use a standardized form, it won’t be easy to compare financial aid offers.

I will help you decipher how to read those award letters so you can figure out what college is giving you the best deal. Keep in mind that the review process can take a while, especially if you need to do some research on your own – and more than likely, you will need to because not all colleges will provide all of the information you need.

As you go through the steps, I recommend creating a spreadsheet so that you can compare everything side-by-side.

Step 1: Figure out the Cost of Attendance.
Cost of attendance includes:

  • Tuition and fees
  • Housing and meals
  • Books and supplies*
  • Transportation*
  • Other educational costs**

*Transportation, books and supplies are not paid directly to the school. These figures are provided to give students an estimate of how much they will pay while attending college for the academic year.
**This will vary from each school depending on other things the college may require.

Not all of the award letters will include the cost of attendance. Students may have to go to college websites or contact the school directly to get this information.

Some things to keep in mind about cost of attendance:

  • Cost at many colleges will go up over the years. Some might have increases every year. Although the colleges might not have the figures for each year, it doesn’t hurt to ask about cost increases.
  • Although all colleges give estimates for the cost of books, the amount will be different for each student and can change each semester or quarter depending on the classes the student is taking.
  • There may be added costs after students register for classes that are not included in the quoted tuition and fees. For example, courses that require labs usually have extra fees not included in the quoted tuition and fees cost.

Step 2: Calculate “free money.”
Free money is all of the grants and scholarships that students do not need to pay back.

Things to keep in mind about free money:

  • Find out if the scholarships and grants are renewable all four years. Sometimes colleges will add one-time scholarships to incoming student’s financial aid award letters to encourage students to choose them over other colleges.
  • If the scholarship is renewable, find out what you must do to renew it all four years. Will you be able to keep up the requirements to keep the scholarship?
  • As tuition goes up, will scholarships amounts increase or remain the same? This is a question to ask the financial aid department at each school.

Cost of Attendance – Free Money = Total YOU Will Pay (somehow)

The college with the smallest “Total YOU Will Pay” is the college that will cost you the least, at least the first year. I mention the first year because multiple things can change from year-to-year as I discussed above.

Step 3: Were you offered work-study?
Work-study is another option that does not need to be repaid. However, as the title suggests, students have to work for the money. Work-study wages are usually given to the student in the form of a check, just like a regular job. Most work-study jobs will be on campus, but there may be off-campus positions also available.

Questions to ask about work-study:

  • Is the work-study job guaranteed?
  • Will students be assigned a work-study job, or will they have to apply for the work-study position?

Step 4: What loans were offered?
Many financial aid award letters will include loans. These loans will need to be paid back at some point. There are multiple loans that could be added on the award letter:

  • Federal Subsidized Loan – Student does not pay on the loan until the student has been out of full-time education for six months. During the time the student is in school, interest WILL NOT accrue.
  • Federal Unsubsidized Loan – Student does not pay on the loan until the student has been out of full-time education for six months. During the time the student is in school, interest is accruing on the loan.
  • Federal Perkins Loan – Students do not pay on the loan until student has been out of full-time education for ten months. During the time the student is in school, interest WILL NOT accrue.
  • Parent PLUS Loan – This loan is offered to the parents of the students. Although this loan is included on the financial aid award letter, parents will need to show they do not have adverse credit history. Parents will set-up a payment plan.

Cost of Attendance – Free Money – Work Study – Loans =
Amount you must pay out of pocket

The amount that the student has to pay out of pocket is usually paid at the beginning of each semester. Many colleges will allow students to start a payment plan. Typically, if the student has a payment plan, the balance for the term should be paid by the end of the term.

Comparing the Offers
The most important numbers to pay attention to when comparing the offers is the cost of attendance and the free money (scholarships and grants). When you subtract the free money from the cost of attendance, the difference is what you will ultimately have to pay one way or another to attend the college.

Choosing the college that you will attend in the future should not be solely based on cost. However, we all know and understand it is a huge factor. Hopefully the explanation you’ve found here makes it easier to compare the financial aid award letters that you have received from the colleges!

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