Guide to Financial Aid Award Letters

There is a reason every student should complete the FAFSA, the Free Application for Federal Student Aid. It’s not just a very tedious step in an already long process; it’s necessary for students, and their parents or guardians, as they’re making a plan to pay for college. After submitting the FAFSA – and being admitted into college(s) – students can expect to receive a financial aid award letter from their school. This letter, which typically arrives between January and April, spells out the details of your financial aid package. So before we dive any deeper, you may be wondering, “what is a financial aid award letter?” A financial aid award letter outlines the different types of financial aid from multiple sources. It is intended to help fill the gap between your Expected Family Contribution (EFC), which is determined by submitting the FAFSA, and the college costs, oftentimes referred to as COA. Your financial aid package, as outlined in the award letter, is based on your financial need:

COA – EFC = Financial Need

As you navigate this part of the college application process, you will undoubtedly have questions. Fortunately, we have answers.

Unpacking Award Letters

Financial aid award letters vary from institution to institution, meaning they don’t all look the same. It can sometimes be difficult to interpret a financial award letter from one school, let alone compare them all like apples to apples. Here is what you can expect: • Differences in definitions of COA: Sometimes, colleges input the COA on the award letter, while others do not. Some colleges will omit room and board, transportation, or books and supplies. At the same time, others do include those costs – so you need to remember that as you compare packages. • Difficulty identifying each component listed: Financial aid award letters may use acronyms or verbiage that you’re not familiar with. You may find that there are grants, work study, or loans listed, but it’s not obvious as to which category they fall into. Also, when loans are included on the award letter, they rarely include details, like interest rates, fees, years to repay, etc. Some loans may appear to be need-based, but they’re really co-branded private loans. • Front-loading of grants: Some colleges may entice students by “front-loading” financial aid packages with grants for the first year or two and then loans the last two. This is, in part, to help students who may have to drop out after a few semesters. When they do so, they won’t be loaded down with student loan debt. However, you need to ask if all four years will look the same as the first; it’s on you to ask if the financial aid package will remain the same. • Packaging non-need-based aid: Some colleges will include non-need-based loan options like the unsubsidized loan, PLUS loan, and private student loans; while others will not. As you compare letters, it may seem that you’re eligible for these at some schools but not others. That is not the case. All students and their parents can qualify for these opportunities. • Preferred lenders on the financial aid award: Many schools will list their preferred lender on the award letter. These are private student loan lenders that the college has worked with in the past and has a good rapport with. However, you are not obligated to use these lenders. It pays to shop around, as lenders offer a variety of loan discounts that can save you hundreds or thousands of dollars over the lifetime of the loan.

Evaluating an Award Letter

The financial aid award letter won’t just feature financial aid; it will dissect college costs at that particular university as well. Again, award letters are not the same across the board. Some colleges will include a lot of information on cost while others will not. As you evaluate your award letter, you need to check for these components of the total college cost: • Tuition and fees • Room and board • Books and supplies • Transportation • Personal Expenses If those are not included on your award letter, you should be able to find them on the financial aid channel of your college’s website. Next, total up the amount of aid on your award letter. That includes: • Grants • Work study • Need-based loans • Non-need-based loans Now, it’s time to determine how the colleges stack up against one another. • Net cost: This is defined as the difference between the cost of attendance and the financial aid package. The total will tell you how much of a gap exists between the cost of attendance and your financial aid package. You may find that the colleges look similar in how much you will have to pay. That’s because they’re all using the same EFC. • Out-of-pocket cost:This is the figure you really want to focus on. The out-of-pocket cost is the difference between the cost of attendance and just the gift aid components of the financial aid package (merit scholarships, grants, and work study). This will give you the true cost of college because it will account for the student loan debt that you will have to take on. From here, you can build a plan for how you’re going to pay for college with savings, current income, and future income (i.e. your salary that will be used to make student loan payments). After you receive the award letter, you may be asked to return a signed copy of the letter in which you accept or reject each source of financial aid. The college will not increase other aid to compensate if you reject part of the financial aid package, such as student loans. Also, keep in mind that winning outside scholarships could affect your financial aid package. Federal regulations require schools to reduce the need-based aid package when an outside scholarship is won; however, most institutions will first fill any gaps between your package and the cost of attendance. Then, they’ll take away non-need-based or need-based student loans. If you have concerns over this policy, ask your college about how the outside scholarship policy will affect you.