Tis the season. Colleges are sending out their acceptance letters, and financial aid offices are providing their financial aid award letters to the incoming class. Financial aid award letters include how much financial assistance a college is offering each student, and should play a role in your decision on which school to attend.
But here’s the thing about financial aid award letters: no two are the same. As you read through each award letter, you will probably find just as many differences as you do similarities. Your choice of college can have a big financial impact on your life, and you can’t make an informed decision if you don’t understand the award letter. So, what does it all mean, and how do you compare award letters when they look so different?
A financial aid award letter is the total amount of monetary assistance a school is offering you. It may include aid from a variety of sources, so take some time to review the financial aid basics before you start analyzing.
When it comes time to compare, you may be shocked to see that each award letter may present information in different formats and include different information. Some may have your (school determined) cost of attendance clearly identified, while others may not. And terminology may differ from school to school, even if they are referring to the same types of aid.
It can seem like comparing apples to oranges, but don’t get overwhelmed. Start by reviewing each award letter and identifying the pieces you may understand, such as federal grants, federal loans, or state financial aid. If you’re still struggling to get a clear picture of what aid you are being offered, set up an appointment to talk to the financial aid office. Give yourself time to understand the financial side of your education before making any commitments.
If you applied for federal financial aid by completing the Free Application for Federal Student Aid (FAFSA®), the U.S. Department of Education calculated your Expected Family Contribution (EFC). Although it’s often thought to be the amount your family should be able to contribute, it’s not the amount your family is expected to pay. The EFC is only one consideration used by schools to determine how much aid you are eligible for (especially need-based aid).
Your school will take your EFC and subtract it from your school’s Cost of Attendance (COA) to determine your financial need. Once your financial need is determined, the school will identify the types and amounts of need-based aid you are eligible for.
COA – EFC = financial need*
*This is the maximum amount of need-based aid you would be eligible for from that particular school. Need-based aid awards may vary from school to school.
After your need-based aid is awarded, your school will determine how much non-need-based aid you are eligible for, and attempt to award you as much of the remaining amount as they can. To determine the maximum amount of non-need-based aid you are eligible for, your school will subtract the total amount of aid you’ve received from all sources (including your need-based aid, scholarships, and other grants) from your COA.
COA – all aid received = eligibility for non-need-based aid
If you received your award letter electronically, go old school and print it out. Gather all of your award letters and lay them out on a table. For each one, go through these steps.
Gift aid is any type of aid that does not need to be repaid. Gift aid includes grants and scholarships. The more gift aid you have, the better!
Part of the challenge of identifying gift aid is unclear labeling by the school. However, there are some common federal grants you can look for on your award letters.
Non-gift aid is money you will need to earn or repay. This includes loans and work-study. Identify these funds and understand that this money isn’t free. It will take some work on your part to either earn it, or repay it.
Like gift aid, identifying non-gift aid can be a challenge if the school doesn’t have a clear labeling system. Here are some common types.
Federal Student Loans: There are a variety of loans made available through federal student aid.
Federal Work-Study: This a need-based award that you have to earn by working part-time, and is available to both undergraduate and graduate students. Employment opportunities are managed through your college, and jobs can be on or off campus. This award is managed through the college and is based on available funds at each school.
The true cost of college is reflected in the net price—the difference between total COA and gift aid, i.e., grants and scholarships. You don’t factor in any federal or private student loans, or work-study, when calculating net price. That’s why it’s important to identify and separate your gift aid amounts from your non-gift aid amounts when comparing award letters.
COA – Gift Aid = Net Price
The net price is the amount YOU need to come up with, whether that is through loans, work-study, or a payment plan. Net price is the amount you want to use when comparing award letters from different institutions.
Note: some schools have their own formulas for determining net price, and they may not classify the types of aid in the same way. If you receive an award letter that provides you with the net price, don’t hesitate to do your own calculation or call the school for clarification. This will help ensure you are comparing apples to apples.
Example:
| College | Cost of Attendance | Gift Aid | Loans | Work-Study | Net Price |
| College A | $40,000 | $25,000 | $10,000 | $2,500 | $15,000 |
| College B | $30,000 | $5,000 | $10,000 | $1,000 | $25,000 |
| College C | $60,000 | $30,000 | $10,000 | $4,000 | $30,000 |
Once you have determined your net price, have an honest conversation with yourself and your family. Here are some questions to consider:
Remember, this financial aid award letter is only for the first academic year at your school. You will have to do this every year you’re enrolled in college. If you borrow this year, you will likely need to borrow for future years. Take the time to compare award letters; your future self with thank you!
There are a lot of considerations when it comes to choosing a college, and understanding your award letters can help you make the best decision for your education and financial future. For more information, check out these award letter examples, and our previous blog on tips to cover tuition.
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