Decoding the Financial Aid Award Letter

When you begin receiving financial aid award letters from colleges, how can you compare them to make the best college decision for your teen and your family? Here are six tips to decoding the financial aid award letter—and questions to ask before your teen chooses a school:

Compare out-of-pocket costs. To put together a financial aid package, each college calculates your financial need—the projected cost of attendance less your Expected Family Contribution (EFC). Large variances in out-of-pocket cost are likely due to a college's total cost (tuition and fees, room and board, supplies and other expenses). Is the cost of attendance figure at each college consistent? How does each college calculate your EFC?

Understand that you may need to pay more than the EFC. If a college's cost of education is $20,000 and your EFC is $5,000, that leaves $15,000 in unmet financial need. However, if the aid package totals $12,000, that leaves a $3,000 gap you'll have to cover. You should consider this gap when comparing colleges.

Review any student contribution. Some colleges' financial aid award letters may list a student contribution figure—the amount that a student is expected to contribute from private scholarships and savings. They might also list a self-help expectation—a student's earnings from a job. You and your student should evaluate this figure carefully and determine how much he or she would need to work throughout the school year and in the summers to raise this amount.

Review additional information. Some financial aid award letters offer a web address where you can review terms and conditions of loans, grants and scholarships, as well as required next steps to accept or deny aid. Even if you understand the information provided in the letter, it will be helpful to get more details and understand the "fine print."

Consider how much debt your student can realistically handle once he or she graduates. Remember that the aid you view in an award letter is for one year. Think beyond one year—if a student takes out a loan for $7,000 each year for four (or more) years, that's a sizeable amount of debt at graduation. Also consider factors such as repayment terms and interest rates.

Find out what aid will go away in future years. Ask the financial aid office how much aid to expect in future years if your family's financial situation stays about the same. Are all grants listed on the financial aid award letter four-year grants, or are some of them for freshmen only? How about scholarships—did the letter list any one-year scholarships? For four-year scholarships, what will be expected of your student to keep them?

Financial aid award letters vary from college to college, so don't be afraid to ask financial aid administrators to explain any sections that are ambiguous. An award letter should give you a good understanding of what the college will cost your family. Before you make any decisions, get the clarity you need.


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