How to Break Down Your Financial Aid Award Letter

In just a few short weeks college financial aid award letters will start arriving. For most, this process is confusing; award letters are not all are the same and it’s hard to compare colleges when their award letters aren’t standardized. Award letters arrive after you receive your offer of admission. They should play a major factor in deciding which college to attend.

What are the components of the award letter?

Every award letter should contain these basic components:

• The full cost of attendance, which should be broken down into expenses such as tuition, room and board, textbooks, and even travel.
• Grants and scholarships should be clearly listed (neither has to be repaid).
• Loans (listed by type and amount), including the interest rates.
• The net amount you will pay after the financial aid is deducted.
• The expected family contribution.

Many colleges also offer work-study as a financial award, allowing the student to work while in college to supplement college expenses.

Not all award letters include this information, so the way they present it and how you interpret it is extremely important. For example, many colleges list the cost of attendance separate from room and board, making the financial award appear larger than it truly is. Don’t discount the cost of living—fees usually account for only one semester, and can add up quickly.

The best colleges have implemented the new Financial Aid Shopping Sheet created by the U.S. Department of Education. This sheet breaks the award down into segments, including all the information you will need to evaluate the award. If the college doesn’t include this, you can print out your own copy and transfer the data they provide.

How do you evaluate the award letter?

If you examine the components (as shown above) of the award letter, it should make it easier to evaluate it. First, you should determine the school’s real cost of attendance. You can find this on the College Board’s site BigFuture. Just type in the name of the college and the search provides the pertinent information.

Next, you should look for the free money (grants and scholarships) and survey the loans that are listed. Free money can come from the federal government, state government and colleges themselves. This is money you won’t have to repay.

As far as loans, the college should only list student loans, not parent loans, in the letter. Remember that loans must be repaid so you should check loan repayment calculators first before accepting them. If you are seeking private loans independently from your chosen college, make sure to compare interest rates—some can be higher than others, and can become a huge expense in the years after graduation. Most loans give you a grace period after graduation; you don’t have to start paying them for about six months. Loans can be further deffered if you continue your education after college (i.e medical school, graduate school, etc.).

After you examine this information, you should be able to take the true cost of attendance, subtract the grants, scholarships and loans to determine what you will have to pay to attend the college. Don’t be fooled by the loans, however; the best aid packages are heavily weighted with grants and scholarships. The less loans you have when you graduate, the better!

If you any have questions about the letter, call the financial aid office of the college.

Is a college “gapping” you?

Gapping occurs when a college offers admission but doesn’t back it up with financial aid. Basically, the college doesn’t offer enough aid to cover your expected family contribution. This often happens when the student is at the bottom of the applicant pool. In this case, the gap between what the family can afford and what the college offers can often be tens of thousands of dollars. If you determine that a college is gapping you, consider attending one of the other colleges that offered admission and a better financial aid package.

What might be missing from the award letter?

Even though scholarships and grants are offered, colleges often neglect to provide relevant information regarding the requirements necessary to keep the money throughout your college career. It’s also not clear whether the awards are renewable for all four years of college. If you earn a scholarship or grant from the college, ask if it will carry over into your remaining college years. You should also ask if any of the scholarships have criteria such as a specific GPA, enrollment requirement, or certain income requirements. Most colleges reevaluate scholarship and loan packages each year, so it is important to know if and how you will get the same package annually.

How should you make your final decision?

Parents and students agonize over these award letters. After being accepted to a dream college, these letters can change the final college choice dramatically. My recommendation is for you to compare the colleges side by side and make the best financial decision for your family.

Which college gives you the most aid, apart from loans, that will allow you to graduate with minimal debt? This should weigh heavily in your final choice. However, don’t forget what you want out of college. Don’t go to your last choice school just because you get a little extra money. Clearly every family and financial situation is different, but you should feel passionate and excited about your college experience. Financial aid is important, but so is your overall happiness. Make sure to find a balance that works for you.