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. A financial aid award letter will explain how much, and what types of financial aid your school has offered you. Your school may present this to you as a financial aid offer, financial aid package, or financial aid letter.
But here’s the thing about financial aid letters: no two are the same. As you read through each 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 financial aid offer letter. So, what does it all mean, and how do you compare letters when they look so different?
A financial aid package 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 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 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 may vary from school to school.
After your need-based aid is determined, your school will determine how much non-need-based aid you are eligible for, and attempt to provide 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 letter electronically, go old school and print it out. Gather all of your financial aid offer letters and lay them out on a table. For each one, go through these steps.
Grants and scholarships are the most common types of aid that you won't need to repay. The more aid you don't have to repay, the better!
Part of the challenge of identifying aid you won't need to repay could be caused by unclear labeling by the school. However, there are some common federal grants you can look for on your financial aid offers.
Loans will need to be repaid. Work-study will need to be earned. It will take some work on your part to either earn it, or repay it.
Identifying loans and grants can be challenging if your school doesn’t have a clear labeling system. Here are some common types to help you get started.
Federal Student Loans: There are a variety of loans made available through federal student aid.
Federal Work-Study: This is aid that you have to earn by working part-time, and is available to both undergraduate and graduate students demonstrating financial need. Employment opportunities are managed through your college, and jobs can be on or off campus. Federal work-study is managed through the college and is based on available funds at each school. It isn't uncommon to see a form of work-study be offered by your 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 aid 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 financial aid offers 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 financial aid 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 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 letters; your future self with thank you!
There are a lot of considerations when it comes to choosing a college, and understanding your financial aid letters can help you make the best decision for your education and financial future. For more information, check out these financial aid letter examples, and our previous blog on tips to cover tuition.
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