Understanding Your Financial Aid Award Letter
It’s easy to misinterpret a financial aid award letter. For most students, financial aid comes from a wide variety of sources—including grants, scholarships, loans, and work-study programs.
It’s definitely possible that some colleges want to make your financial aid deal look better than it is—otherwise, they might lose their students to schools that offer bigger awards.
But it’s crucial to understand all the aid you’re getting, the size of your student loans, and your expected contribution—otherwise, you might end up at a school you can’t afford. Here are a few pointers for understanding your financial aid award letter.
Start with the sticker price
To evaluate your financial aid award letter, pull out some paper and write the full cost of attendance at the top. That number should include fees, books, and room and board as well as yearly tuition. Some schools will only mention your tuition costs; if that’s the case, call your admissions office to find out the other numbers.
College financial aid can vary widely from one school to the next—and it’s not always easy to understand the award letter at first glance.
Your first step in comparing award letters should be to list the number of scholarships and grants you’ve been given at each institution. Scholarships and grants are the best kind of aid. You don’t have to pay them back, you don’t need to worry about interest, and you don’t have to work to earn them. Add up the number of scholarships and grants you’ve been given, ignoring any figures that have a lowercase “ln” listed next to them—that’s an abbreviation for the word “loan.”
Once you’ve added up your grants and scholarships, subtract that figure from the overall cost of attendance. The figure you get at the end is your net cost of attendance—the amount you’ll need to find a way to pay using your parents’ contributions and savings, your loans, and your work-study aid.
Consider work-study awards next
Bear in mind that most of the time, when a college lists a work-study award in its financial aid letter, it’s simply promising to find the student a job on campus. It’s good to know you’ll qualify for on-campus jobs, and the money you earn there won’t be paid back as student loans—but it should be considered separately from grants and scholarships. The number given under work-study in your letter may or may not work out to the exact amount you’ll get at a work-study job—so don’t subtract it from the net cost of attendance.
Figure out how much they’re promising to pay per hour, and tally up how many hours you’ll need to work to earn the total sum promised here to judge whether it’s realistic. Bear in mind that it will be tough for you to manage more than ten hours per week in your first year in addition to full-time school.
Add up your loans
Once you’ve subtracted scholarships and loans, assess the amount of loans on offer. Add them up and consider your interest rate. Most of these loans probably won’t be due until you graduate, but once you do, you’ll have a large bill—and huge student loan debt could severely limit your life for many years to come. Pay careful attention to whether the loan is subsidized—meaning the interest is paid while you are in school, and isn’t added to the amount you’ll pay back when you graduate. If it’s unsubsidized, that means the interest will add up while you’re in school even if no bills are due until after you graduate—so your debt will be higher later. Add up your total debt and calculate your monthly bill after graduation.
Once you’ve added up your loans, subtract them from your net tuition minus grants and scholarships. The number left over should be your or your parents’ expected contribution. If that figure is still too large for you, you may be expected to take out further private loans to cover it—and the terms will definitely be worse than they are for federal loans.
Other things to consider
Never assume you’ll get the same amount of grant aid all four years unless your financial aid letter explicitly states that. Some schools offer more scholarships and grants to freshmen than to students in their second, third, or fourth years. You may need to call your school to find out if this is the case for them.
In addition, some schools make their own scholarships less available to students who come in with private scholarships—such as those from companies, community organizations, and nonprofits. You’ll want a school that reduces the number of loans you need if you land a private scholarship—not one that reduces the amount of grant aid you’re eligible for.
Finally, your financial aid could change in upcoming years if you have a sibling who will enter college while you are in school. Talk to your college to see how that will reduce your tuition bill in future semesters.
College financial aid can vary widely from one school to the next—and it’s not always easy to understand the award letter at first glance. Consider your scholarship and grant aid first—and get in touch with your school to verify whether they will offer you the same amount year after year. In addition, be sure they’ll offer you the same amount of grant and scholarship aid even if you come in with a private scholarship. Once you have this information, you’ll be able to compare the true cost of colleges before you choose one to attend.
FinAid.org: Guide to Financial Award Letters
EducationGrant.com: Understanding Your Financial Award Letter
Kiplinger: How to Interpret a Financial Award Letter
Wells College: Understanding Your Financial Aid Award Letter
LA Times: How to Evaluate College Financial Aid Options
College Money Insider: Paying For College 101: How to Decode the Financial Aid Award Letter
More About Financial Aid
- Can You Hurt Your Chances for Federal Financial Aid By Saving Too Much for College?
- In a Same-Sex Marriage? How Your FAFSA Will Change in 2014
- How Your Federal Student Aid Will Change in 2013
- Do Younger Children Get a Better Deal on Student Aid?
- Senior Citizens and the FAFSA: Getting Federal Aid When You're Over 60
- Can Your Credit Score Affect Your Federal Aid?
- Tuition Aid for International Students: The Funding Landscape
- Major Changes to Your Federal Student Aid in 2012-2013: What's Ahead