When students receive their financial aid award letters from their college of choice, they may be wondering what language it was written in. Something everyone should learn is how to read a financial aid award letter. Knowing how to compare award letters from different colleges is essential, too. Here’s how.
While financial aid award letters may differ from school to school, they contain the same basic information. That information includes cost of attendance, expected family contribution, financial need, gift aid (scholarships or grants) work-study, and student loans. The collegeave studentloans.com website provides all the basics on this.
Cost of attendance is the total cost of attending a particular college. This includes a budget for books, transportation and personal expenses. It’s more than simply tuition, room and board.
Expected family contribution is the amount of money the federal government says a family is expected to pay for college. This amount is generated from the FAFSA—the Free Application for Federal Student Aid. Most families see their EFC and think “there’s no way we can pay that.” If you think that, you’re not alone. Financial need is simply your expected family contribution subtracted from the cost of attendance. In essence, this is the gap between what the college costs and what you’re able to pay. Again, that gap may be larger than you think.
There are many forms of financial assistance. One is often referred to as gift aid. This is money the student receives that they don’t have to pay back. It may be in the form of scholarships, merit awards from a university, or grants, like the federal Pell grant. Self-help aid is often in the form of a student loan. There are several kinds of loans, and we’ll only touch on them briefly here. Another form of loan is the PLUS loan, which parents take out to help their student attend college.
A second form of self-help aid is work-study, which is money the student can earn by working on campus to help with their expenses. Sometimes these awards are tied to federal dollars, and sometimes universities use the term “work study” to refer to any kind of student employee job at their school. But in any case, students are often told what they are eligible to earn through work study. That amount will be in the award letter.
As for how to read a financial aid award letter? It’s simple. Here is a sample award letter on the scholarships360.org website (information courtesy of Whitman College in Washington) that includes most of the details you’re likely to see.
You can see the EFC, the total cost of attendance, and all the components of the proposed aid package for the student. Note that the family contribution includes both student and parent contribution amounts. This is common for award letters. Whitman College places their cost of attendance at the bottom of the page, with the aid they’re offering at the top. This avoids sticker shock at the cost of attendance being the first thing you see on the page.
When students receive their award letters, they are often asked to accept each component. It’s a no-brainer to accept the grants and scholarships, since they don’t have to be paid back. Look at each of the loans your student is offered and decide whether to accept them or not. Understand that if you don’t accept a loan, your student will have to pay more out-of-pocket to attend that college.
I mentioned earlier that transportation is included in the cost of attendance. Say your student lives farther away than the average student—on the opposite coast, for example. In that case, the financial aid office may offer your student more for transportation than they offer the average student.
Once you learn how to read a financial aid award letter, you have a couple of bottom line figures to consider. The first is the out-of-pocket cost your student will pay to attend the college. There are a number of ways to pay that cost. One option is payment plans, which many universities offer. Only your family can determine how you to pay your out-of-pocket costs.
A second important question is: how many loans do you want your student taking on during college? One reason some say that college isn’t worth it is because of the explosion in student loan debt. At the same time, it’s difficult for students today to graduate with no loans at all because of how much college costs. This is a great time to discuss the maximum debt burden you and your student want them to have after graduation. As I’ve noted in a previous post, you should decide if that number is $25,000; or perhaps it’s $50,000. Also, how large will their student loan repayments be? Be clear about these figures before making a final decision.
The basics of financial aid award letters are the same, but there are some differences. Make sure you’re comparing apples with apples. Salliemae suggests using a simple spreadsheet to do this. The link takes you to their page and their sample spreadsheet. As they explain on their website, on the leftmost column of the spreadsheet, include items such as cost of attendance, “scholarships, grants, fellowships, work study, and federal loans.” At the top of the page, place the names of all the schools your student has been admitted to. Then fill in all the financial aid each school is offering, and subtract each bit of aid from their cost of attendance. The amount at the bottom of each column tells you how much they have to pay to attend that college. You don’t even need a spreadsheet program: just make a simple chart on a piece of paper.
A final note is if you and your student feel they simply can’t afford a particular university, that’s not necessarily a tragedy. College is expensive enough that students and parents need to take finances into account as a significant part of the college choice process. Being sure about the college and its cost are the smart things to do.
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