Financial Aid Award Letters

How to Interpret College Financial Aid Packages


If your child has successfully applied to college and you have properly completed the Free Application for Federal Student Aid (FAFSA), your family should soon be receiving financial aid award letters from the various colleges to which your student applied. These may seem a little confusing at first but, once you get past the financial lingo, you should have a pretty good idea of what your out-of-pocket costs will be.

Unfortunately, there is no consistent format for these letters, so you will have to understand each one individually and work out your own costs so you can compare the colleges with each other. Here is what you should be looking for in these letters:

  • Cost of Attendance (COA): Each college should disclose the full cost of attendance for a year based on its current tuition, room and board based on the selected housing and food plan, estimated textbook costs, personal expenses, and potential travel costs. Make sure these costs are accurate as your child’s specific situation may be different.
  • Understand the Difference between Grants and Loans: A scholarship or grant from the college is usually marked pretty clearly. This is money that will not have to be repaid. But many colleges also include federal student loans and PLUS loans under the heading of financial aid, when they should really be listed under their own separate category. Be very clear that these are loans that will have to be repaid at some point in the future. You must understand the financial obligations you are undertaking when you agree to utilize federal student loans to help pay for college.
  • Look for Work-Study Awards: While this is not money that needs to be repaid, make sure your student understands that he or she will be expected to work to help pay for college costs. This will have to be factored into the course load and any extracurricular activities your student may plan on pursuing.
  • Expected Family Contribution (EFC): This amount may not be apparent on the financial aid award letter, but it is a crucial piece of the financial picture. Once you have accurately calculated the cost of attendance, subtracted scholarships and grants, and taken into student loans into consideration, there may still be a certain amount of money due. This is your Expected Family Contribution, which is money your family will be expected to provide during the course of the school year. This money may come from savings, grandparents, and other outside scholarships, or you may also need to take out private student loans to cover any remaining costs.

Once you have calculated your loans and EFC for each college, you should have a better platform for comparison purposes. What you really want to determine is how much your family will have to spend out-of-pocket each year and how much you will be borrowing. This is taking a long-term view of college planning, but it could be quite enlightening. All things being equal on an academic basis, this financial information could also help in the final college selection. You also have to take into consideration each school’s graduation rate and earning potential after graduation.

If you haven’t received financial aid award letters from all of the prospective colleges yet, you can use The College Board’s Net Price Calculator. With just a little information from you, the Calculator can help estimate your “net price” to attend particular colleges. Take some time to review financial aid award letters carefully, and then sit down with your student to discuss your options.