Understanding Financial Aid Award Letters

by Jeanne Mahan, former financial aid officer at Tufts University It’s April and your student has (hopefully!) received financial aid offers from the schools to which they were accepted. While some schools still send these via the postal service, many others will notify your student via email that the information is available on their student portal, and still others will make it your student’s responsibility to check the portal regularly to find this information. As you’ve probably noticed, there is no standardization to these offer letters, which causes confusion. Are you comparing apples to apples, or apples to bananas, or bananas to oranges? If I had a magic wand, one of the first improvements I’d make is standardizing financial aid award letters so they’d be easier to compare. How DO you compare offers so that you can see your actual net price? I encourage families to create a spreadsheet, or simply grab a sheet of paper and do some calculations. First, list the cost of attendance, which includes direct (billed) costs like tuition, fees, room and board, and indirect costs that will not be billed to your student: books and supplies, personal expenses, and transportation costs. Now, subtract the grants and scholarships, or “free money,” your student has received. Highlight this number because it’s your net price before borrowing. If your student was awarded a work-study grant, be aware that this is money they must earn by working a job, usually on campus. The amount of the grant will not appear as a credit on the bill and will not reduce the amount owed for the semester. Work-study jobs are a great way for students to cover those indirect costs: books, software, pizza, and the price of a ticket home on Thanksgiving break. If your plan to pay some of the remaining costs includes borrowing, subtract the student federal Direct Loan from your net cost. Most schools include the student loan in their financial aid offers. Freshmen are eligible to borrow $5,500, regardless of income or expected family contribution (EFC), as long as they have filed a Free Application for Federal Student Aid (FAFSA). Explain to your student that they will be the borrower and, unlike grants or scholarships, the loan will need to be repaid. The federal Student Aid website has details on the various loan repayment options available. You and your student will want to review the requirements before they complete the master promissory note. There’s also a handy loan simulator on the site so students can see their estimated monthly payments and interest paid depending on the repayment option they choose. Now that you’ve subtracted the “free money” and the student loan, look at the remaining balance.  Many colleges include parent and private education loan options as part of the financial aid award, leading families to believe that more of their costs are covered than actually are. Remember, loans defer when you pay for college (after your student has graduated), and will have a higher cost (interest) than using savings, current earnings, or my personal favorite, tuition payment plans. Tuition payment plans allow families to pay some or all of the balance owed over six, eight, or ten months, interest-free, with a modest account set-up fee. I was thrilled to recently see the tuition payment plan as a prominent option, before alternative financing such as federal Parent PLUS or private education loans, on an award letter from DeSales University. You’ll need to understand what the colleges are offering and do the math to arrive at your actual net price. A large scholarship doesn’t always make a college more affordable. Knowing your net price will be helpful if you are considering negotiating for a larger scholarship amount, as well as determining your best payment options.