After diligently reporting their families’ financial information as accurately as possible in the FAFSA under the threat of a $20,000 fine and/or prison, high school seniors are anxiously waiting to receive their financial aid award letters. Now, even though each student’s family situation is different, applicants all completed a standard form for financial aid. Major financial factors such as loss of job or health issues have to be addressed in a separate letter to the financial aid office.
So why will the student probably receive financial aid letters in as many formats as colleges applied to and often designed to deliberately mislead families on how much money they will have to pay?
Even though the federal government has proposed a common financial aid letter form, the colleges aren’t racing to adopt it. Why? Well, some say because a standard form doesn’t allow the school to most effectively present its financial aid award for the student. Effective for what?
Right now, plenty of colleges benefit from vague financial aid award letters. Some colleges’ financial aid awards don’t look so good when comparing apples to apples so why take the risk?
Many letters are constructed to make it less than clear how much money the school is providing and how much the family is expected to borrow. It is fundamentally dishonest for a school to lead students to believe that their need (Cost of Attendance minus Expected Family Contribution) is met when it includes any self-help aid–that means mainly loans.
And by loans, I’m including government subsidized loans as well. Just because the government is paying the interest on a loan while the student is in school shouldn’t mean the loan should be listed “gift aid.” Yet it’s generally acceptable for these loans to be part of the net price calculation along with grants and scholarships. That means that low-income students can’t use the subsidized loans to meet any of their EFC. Just one more thing to watch out for on the financial aid award letter.
Although there is some progress towards a standard financial aid award letter, there is still a long way to go. Until then, the lack of a standard financial aid letter format means that students and families need to educate themselves so that they understand what the letters say and don’t say. The following resources are five ways to get smart about financial aid letters.
ONE Must Read
How to Evaluate Financial Aid Award Letters at Edvisors does the best job I’ve seen visually explaining Net Price. Mark Kantrowitz is the expert in the subject–if you’re only going to read one thing, this is it.
TWO Ways to Compare
There are several financial aid award comparison tools available including the Advanced Award Letter Comparison Tool and one from Big Future. I suggest trying the Compare Schools tool from the Consumer Financial Protection Bureau because it will pull up existing data for schools as you enter their names, including costs, default rates, and graduation rates.
For those who prefer to keep all of their information off-line, use the Excel Award Letter Comparison Tool provided by the Vermont Student Assistance Corporation. The nice thing is you can add as many schools as you like.
THREE Issues to Consider
Outside Scholarships. Outside scholarships must be reported to the college financial aid office and may affect your financial award. How it will affect your award will depend on the college. Read Can Outside Scholarships Impact My Financial Aid? for the possibilities. Ultimately, you’ll have to check with each school.
Gapping. When colleges do not meet 100% of a student’s need, there is a financial gap. Sometimes, the existence of a gap isn’t obvious because the financial aid letter includes PLUS or private loans that cover the gap. But such loans should not be counted as money from the college to meet the student’s financial need. Read more at What is financial aid gapping?
Net Price and Net Cost. Make sure you understand the difference between Net Price and Net Cost. Net Price is how much the college is charging after applying any gift-aid such as scholarships and grants. Net Cost is about how much the student will pay after all financial aid awards including student loans and work-study. When comparing colleges, student should be using Net Cost and not Net Price. Read more at Quick Reference Guide to Evaluating Financial Aid Award Letters.
FOUR Examples of Letters
The more letters you see, the more familiar you’ll be with what to look for. Three of the following have sample award letters with reviews. The fourth lists sample letters to appeal a financial aid award.
How Financial Aid Letters Often Leave Students Confused and Misinformed Evaluates five letters with special attention on PLUS loans.
Financial Aid Letter.com contains six financial aid letters and calculates the actual cost for the family.
Big Future has a Webinar, “It’s Time! Comparing Financial Aid Award Letters and Making the Best Decision for You” that includes a PDF of sample financial aid award letter you can download.
FIVE Ways to Evaluate Financial Aid Letters
The following all provide information and tips on how to read a financial aid award letter.
- Financial Aid Award Letters: Eschew Obfuscation
- Who, How and Why to evaluate offer letters
- Guide to Financial Aid Award Letters
- Understanding Your Financial Aid Award Letter (PDF)
- 10 Rules For Decoding College Financial Aid Award Letters