April is a tough month for high school seniors and their families. They are receiving college acceptance or rejection letters, preparing for finals and AP exams, getting ready for prom and graduation, all while trying to choose the “best” college to attend.
One of the key factors in deciding which college acceptance to select is the financial aid award letter. Families can help students decipher these letters and the types of financial aid before choosing a school.
Unfortunately, many college send out confusing financial aid awards. They are not uniform: some include all expenses and types of aids, others don’t.
Fortunately, the new federal Consumer Financial Protection Bureau is developing a disclosure form that clearly states what college costs would be, including the costs of borrowing any money. Colleges should be using this financial aid shopping sheet next year.
Financial Aid Award Letter Criteria
Colleges should sent awards letters with enough information for parents and students to decide what they are accepting and agreeing to spend.
- The full cost of attendance, including tuition and fees, room and boards, and books.
- Any offered scholarships or grants. This is “free” money and should always be accepted by families.
- Any offered loans, including the interest rates and terms.
- The family and student’s EFC (Estimated Family Contribution) as calculated from the FAFSA. This is the number that families are supposed to be able to pay for that year of college.
- Net price of the college to family and student. The net price should be the total price minus the award monies.
I have seen several award letters in my career as a college consultant. Some are confusing, others downright misleading. Here are a couple of examples with names and identifying information removed:
One family has an EFC of $14,000. This means that the family can expect to pay around $14,000 for their child’s year of college.
College #1 sent an award letter without the total tuition cost, but offered a grant for $20,000. The family was very happy about this grant!
College #2 sent an award letter with a total tuition cost of $25,000 and offered a scholarship worth $12,000.
The family was leaning towards college #1 just because of the higher award offered. After careful examination, here is what I provided:
College #1 is a private college, costing $45,000 a year. After the grant, the family would pay $25,000. Since they did not have this whole amount saved, most of it would be borrowed through student loans.
College #2 is a public state college, costing $24,000. After the scholarship of $12,000, the costs to the family would be $12,000, which was saved in the student’s 529 account.
Without evaluating the entire award situation, the family might have chosen college #1. In that case, the student would have graduated with a substantial student loan debt. The student could attend college #2 and graduate with no debt.
One award letter I have already seen this year didn’t include the cost of room and board. That would be a huge oversight if the family didn’t include this cost.
Another letter I dealt with this school year did not include the family’s EFC. Thankfully, we were able to look it up on the FAFSA to use in our calculations.
One final trick I have seen is when college offer several loan packages, including the federal PLUS loan (for parents). These loans will be subtracted from the overall college cost, even though most families will (and should!) decline excessive loans. Most parents, regardless of the EFC, can qualify for this loan, but with an 8% interest rate and 4% fee tacked on, it’s not the smartest financial move parents can make.
Parents with questions or concerns about their financial aid packages can contact the college’s financial aid office or a local college consultant who can guide them through the process.