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Comparing Financial Aid Awards

It’s a very exciting time in the life of the high school senior when those college acceptance letters start rolling in! Excitement mounts and the process of deciding which college offer to accept begins. This decision cannot be made, however, without carefully taking into consideration the financial aspects of this endeavor. On the heels of the college admit letters come a number of merit scholarship offers and financial aid award letters. Now that we have all of this information in hand, we are tasked with figuring out which college is the best academic and social fit for our son, while also making sure it is a financial fit for our family. The number crunching has begun!

All Awards Are Not Created Equal

What I have found through my son’s application process is that financial aid award letters are definitely not all created equal, nor are merit scholarship offers. Therefore, I wanted to share some advice on how to carefully compare offers from colleges in order to determine overall affordability. The financial aid award letter includes an offer of financial assistance, which can come in the form of grants, loans, and work programs, and will also include any scholarship offers from the college. Be sure to keep in mind that grants and scholarships are gift aid (aka free money!), so are the most sought-after financing option. Although families tend to focus on obtaining grants and scholarships, the reality is that loans are a big piece of the college financing puzzle as well, and thus are a common component of financial aid award letters. Getting out your magnifying glass and carefully comparing financial aid awards  is a critical exercise—comparing not just the total amount of aid offered, but the specific details of each and every financial aid program. You will also need to pay close attention to the college’s Cost of Attendance (COA), whether the student was awarded to full need, or if there is a gap in the funding.

Getting Organized

To help compare offers and keep all of the data organized, I created an excel spreadsheet to have all pertinent information in one place. If excel isn’t your cup of tea, then develop any system that works for you. An old fashioned chart written out on paper is fine, or you can use one of many award letter comparison tools that are online. If you use an online tool, all of the important data fields are built into the tool, making your job of comparing awards very straight forward. Develop a system that works for you—that’s the important thing. Important data fields to note include the total cost of attendance, which should include those direct billed items, such as tuition, fees, and room and board (if your child is living in college housing), as well as indirect expenses, such as an allowance for books and supplies, transportation, and personal expenses. I can’t stress enough the importance of having a solid grasp on the total costs that will need to be covered during the entire academic year. The college will often provide a solid estimate of costs on either the financial aid award letter or on their website, however, it is important to determine if your child will have additional expenses beyond the college’s standard budget, such as a laptop purchase, medical expenses, or additional travel expenses.

Once you determine a realistic total cost of attendance, the next step is to calculate the net price of each college. In order to do this, deduct any gift aid (grants and scholarships) from the total cost of attendance—the result is your net price (the amount you will need to cover as a family). Then take into account any student loans or Federal Work Study offered. The resulting figure is the amount that you will need to cover out-of-pocket. It is important to have a plan for covering that bottom line before committing to the college, such as drawing from savings, borrowing loans, or enrolling in the college’s tuition payment plan.

Scholarships

If the student received any merit scholarships, it’s important to know that each college sets its own qualifications and criteria for merit-based aid and that scholarship levels may vary greatly from one college to another. It is also essential to note that merit scholarships may or may not be renewable, or their continuation may be based on maintaining a certain grade point average or remaining in a specific academic program, so be sure to take note of the specific award renewal criteria. It would be a huge disappointment, and financial setback, if a student planned on a merit award for four years, and then found out that the merit aid was only available for the first year.

Loans

Student loan terms vary greatly between loan programs, thus it is important to understand the type of loans that are being offered. Loans need to be paid back, so you need to understand the repayment terms of each loan. Some colleges will include Federal PLUS Loans on the award letter, even though they are not a guaranteed source of funding until after a parent passes a credit check and is approved for the loan. PLUS Loans are available at all colleges, and are generally considered a financing option, as opposed to financial aid, so don’t be misled by a large PLUS Loan “award.” Parents should also be clear on the interest rate and fees for any offered loans prior to borrowing.

Work Study

Students meeting eligibility requirements may also receive a Federal Work Study (FWS) allocation. This program is a popular need-based financial aid program that allows students to work on campus; students can get valuable work experience while earning an hourly wage. It is important to note that the FWS allocation cannot be used to pay the initial college bill—students must first work the hours. Then they will receive regular paychecks which can be used to cover incidental costs while at college.

Finalizing the Award

The award letter may list additional documents that are required for finalizing the financial aid award. Be sure to submit any requested documentation by the stated deadline so that the award can be finalized. Financial Aid Offices typically require that you accept the awarded aid (or decline it if you don’t want it, in the case of loan or work options) by signing a copy of the award letter and returning it to the Financial Aid Office or indicating acceptance/declination via an online portal. Keep in mind that even after you accept the awards, you can make changes if needed. For example, after working throughout the summer, a student may decide that he does not need to borrow a student loan after all—he’ll just need to contact the Financial Aid Office to request loan cancellation.

The goal of this article was to point out some items to think about when reviewing financial aid award letters individually and in relation to each other. Award letter totals may vary greatly between colleges; students may not receive equal amounts of financial aid or even the same mix of financial aid programs. It is important to carefully review award letters and ask the Financial Aid Office to clarify any details that are not clear prior to committing to the college.

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Written by Jan Combs
Jan Combs is a college finance expert at College Coach. Before joining College Coach, Jan was Director of Financial Aid at Harvard Graduate School of Education and Assistant Director of Financial Aid at Boston University.