How To Read A Financial Aid Letter

Financial aid packages are often the determining factor for students as they make decisions about which college they will attend. Though most colleges use the Free Application for Federal Student Aid (FAFSA) as the basis to determine aid, there can be wide variation in the different award packages a student receives from college to college. And, these financial aid letters include many unfamiliar terms, confusing numbers, and nuances that can make sizable differences in the financial obligations a student and their family will assume in choosing a particular college. It is critical that students and families understand exactly what is being offered by each school and how that will impact them economically over the course of four years and beyond. 

Delayed Timeline this Year

With the significant delays in the FAFSA rollout this year, the timeline for students and families to receive their financial aid packages has also been pushed back. Colleges typically receive FAFSA information in January; this year, they will not receive it until March meaning that many students will not have their financial aid offer letters until April or May. With this backdrop, it is more critical than ever that counselors provide information and support to students and families so they will be able to understand the implications of different financial aid packages once they are received. 

Use the information below to share with students and families to help them unpack the details of the financial aid letters and to ask appropriate questions as they make postsecondary decisions. 

Understanding the Details of a Financial Aid Letter

This annotated College Financing Plan sample letter created by the U.S. Department of Education shows the information commonly found in financial aid letters. 

Important Terms to Note

Cost of Attendance (COA): The total amount (not including grants and scholarships) that it will cost a student to go to school. This includes tuition and fees; housing and meals; and allowances for books, supplies, transportation, loan fees, and dependent care.

Federal Work-Study: A federal student aid program that provides part-time employment while the student is enrolled in school to help pay his or her education expenses. In most cases, the student must apply for work-study jobs at his or her school. The student will be paid directly for the hours he or she works. There are limitations on the amount you can earn as it cannot exceed the total amount awarded by the school for the award year. 

Grants and Scholarships: Grants and scholarships are forms of assistance that do not need to be repaid. Grants are financial aid funds that are often based on financial need and scholarships are financial aid funds that are often earned based on merit. 

Loans: Borrowed money that must be repaid with interest. Loans from the federal government typically have a lower interest rate than loans from private lenders. There are different kinds of federal loans: Direct Subsidized Loans accrue the least amount of interest because the government pays the interest while a student is in school; Direct Unsubsidized Loans are more expensive for the borrower because they are responsible for the interest while in school, and Parent PLUS Loans are loans available to a parent, who is responsible to pay back the loan. 

Net Price: An estimate of the actual cost that a student and his or her family need to pay in a given year to cover educational expenses for the student to attend a particular school. This is determined by subtracting any grants and scholarships from the school’s cost of attendance. 

Student Aid Index: Previously called the “Expected Family Contribution;” this is a number based on the FAFSA that is used by a school to calculate the amount of federal student aid you are eligible to receive. 

Questions to Consider in Understanding Financial Aid Packages 

Grants vs. Loans

• How much will have to be repaid? 
• When will the loans begin accruing interest? 
• When am I required to begin making loan payments?
• How do private grants and scholarships factor into the package?

Commitment Length & Terms

• Does this award package apply to a single year or all four years? 
• Does my tuition remain locked across all four years, even if the rate increases while in school?
• Does the financial aid package require a minimum GPA, number of credit hours, or any other specific conditions?  

Employment Options

• Can I manage the work study hours commitment along with my academic course load?
• Are there other kinds of jobs on campus or nearby that might be available?

Payment Deadlines

• Does the college offer tuition payment plans that space out the payments? 

Reaching out for Questions or Help:

• How do I get in touch with the financial aid office? All colleges and universities have financial aid counselors who are there to help answer questions. 

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