How to Read a Financial Aid Award Letter: Understanding the Real Cost of College

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Applying for financial aid can be a very stressful part of the college admissions process. For some, receiving the financial aid award letter can be almost as stressful. The financial aid award letter is the college’s way of telling you how much financial aid you will receive if you attend their institution. This should be a pretty straightforward process, but there are a few issues that could be confusing.

ial aid can be a very stressful part of the college admissions process. For some, receiving the financial aid award letter can be almost as stressful. The financial aid award letter is the college’s way of telling you how much financial aid you will receive if you attend their institution. This should be a pretty straightforward process, but there are a few issues that could be confusing.

To receive a financial aid award, you must fill out the FAFSA, or Free Application for Federal Student Aid, and submit it before the stated deadline. If you do this, you will receive your child’s financial aid award letter sometime shortly after you receive the acceptance letter, usually around March or April. As long as you receive it before the May 1st deadline to accept offers of admission, you should be fine.

If the deadline is approaching and you have not received it, you should contact the school.

Why Do My Financial Aid Letters Look Different From Each College?

Until 2016, there were no standardized rules for how financial aid award letters should look, so colleges were free to format them however they liked. In 2016, the National Association of Student Financial Aid Administrators did finally pass standardization rules, but all the colleges your child applies to may not have caught up yet as these changes take time to be implemented.

So How Do I Go About Comparing Financial Aid Letters?

Once you know how to read a college financial aid award letter, you will know how to compare colleges based on the content of those letters. For tips on reading a college financial aid award letter, read on.

What Are the Items on the Financial Aid Award Letter?

Your child’s award package will be broken down into the different types of aid he or she receives. These can include:

  • Grants: Grants are “free money” sources for college that you do not have to pay back. Some grants, like the Pell Grant, automatically apply your child for consideration. Others you will have to seek out on your own or with the help of a college advisor. Naturally, you will want to apply for these grants well in advance of the time you expect to receive your financial aid award letter. Grants are typically awarded on a “first come, first served” basis, meaning that the later your student applies, the less likely they are to be awarded the maximum amount of funding.
  • Scholarships: Scholarships are another type of financial aid that you do not have to pay back. These may be incentives from the accepting institution itself to encourage students to attend or through other organizations where your child has applied for this funding. Scholarships may be based on financial hardship, academic achievement, athletic prowess or special talents. Others may be based on a combination of some of these. Some scholarships may not appear on your award letter, so if you think your child should have received one, check with the office responsible for administering the scholarship. Like grants, you will need to apply for scholarships well in advance of receiving the financial aid award letter. It is important to note that if your child receives a grant or scholarship for college, no matter the amount, they must report this to the institution if they are applying for financial aid. Should your student receive a substantial scholarship from another organization, the college reserves the right to amend the award letter to reflect this change.
  • Federal Direct Stafford Loan: Stafford Loans are loans offered by the government to help your child pay for school. These are actual loans that accrue interest — and you must pay them back. Your child will probably receive both a subsidized and unsubsidized loan, with the amount of each dependent upon financial need. With the subsidized loan, the government pays the interest while your child is in school. With the unsubsidized loan, they do not. Interest rates vary on these loans from year to year based on the federal 10-year treasury rate, but are fixed for the life of the loan.
  • Federal Perkins Loan: A Perkins Loan is a need-based Federal loan with a five percent interest rate subsidized by the Federal government. It comes with a nine-month grace period and a ten-year term.
  • Direct Parent PLUS Loan: A Parent PLUS loan is a separate loan that parents can take out to help pay for their child’s college. Some may choose not to take this loan because the interest rate is higher, at 7.9 percent, and the responsibility for repayment is the parent’s, rather than the student’s.
  • Federal College Work Study: Federal work study is an opportunity for a student to work on campus to help pay for college. Students must apply for work study jobs in advance of receiving the financial aid award letter. Work study jobs are based on need and are usually first-come-first-served.

How to Read the Rest of the Financial Aid Award Letter

In addition to the types of financial aid, your letter will show you how much your child’s college tuition, fees and room and board will cost and how you are expected to pay for it:

  • The Expected Family Contribution, or EFC, is how much the family is expected to put forth in dollars of their own resources in order to pay for college.
  • The Cost of Attendance is how much, in total, the child’s costs will be for attending a year at the institution. It can include items like tuition, room and board, fees and textbooks.
  • Gift Aid is financial aid you do not have to pay back — i.e. scholarships and grants.
  • Financial Aid is the full amount you will receive to help pay for college, including gift aid, loans and work study.
  • The Net Price is the total amount of resources that are going to pay for your child’s tuition. It should equal the Cost of Attendance.
  • The Net Cost is the main item you have to be concerned about. It is the Net Price minus financial aid, leaving the Expected Family Contribution and any gap money needed to make the Net Price equal the Cost of Attendance. This is the amount of money you or your child must come up with personally to complete paying your child’s attendance costs.

How Do We Determine Which College Has the Best Financial Aid Package?

The easiest approach will be to compare net costs. Regardless of the financial aid package, this is the amount you will have to pay.

However, when comparing, it’s important to make sure the schools calculate all the costs the same way. One school may show a lower net cost but may have failed to include textbooks in the Cost of Attendance, while another school with a slightly higher net cost has. One school may have included a third-party scholarship while another may not have, even if your child is getting that scholarship wherever they go.

Be sure to take into account variations in how different schools calculate different items.

What Else Do I Need to Keep in Mind?

The amount you pay this year may be less than you will pay in subsequent years. Many schools front-load grants, meaning you get more the first year and less in later years. Also, the costs of college typically rise every year and your awards may not rise commensurately. You may be tempted to appeal a low financial aid award, but you risk alienating the university, so you should contact a professional first.

To better understand how to read and interpret all of the facets of the financial aid award letter and receive help in developing a college funding strategy, contact Ecliptic Financial Advisors online today, call us at  1-732-502-9700 or register for a free workshop to learn more about college financial aid secrets and strategies, or calculate your Expected Family Contribution with our Free EFC Calculator

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