How to Read a Financial Aid Award Letter

Deciphering your award letters can be a challenge.

happy college student reading the financial aid reward letter to her mother

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How much financial aid you’re offered is an important factor in selecting which college to attend, and deciphering financial aid award letters can be a daunting task. Not every school uses the same wording or format, and trying to compare offers can get confusing. Don’t get stressed. Here’s what you need to know about how to read award letters.

Looking for the Best Deal

If you submitted a FAFSA (Free Application for Federal Student Aid) and were approved for financial aid, every school that accepted you will send you an offer of aid. Usually, financial aid letters directly follow acceptance letters, although sometimes they can be included with your acceptance letters.

The total amount of aid offered by each school isn’t the most critical number. Make sure you look at the gap between how much each school costs to attend and how much you’ve been offered in assistance. The school with the highest tuition might actually be giving you a better deal, making that the more affordable option. Remember, too, that not all aid is equally appealing and you can pick and choose which elements of your financial aid package you want. The less you have to repay, the better. 

Components of Your Letter

Here’s what your typical letter includes: 

  • The types of financial aid you’ve been awarded. Your offer letter may include federal, state, private and school sources of aid that you’re eligible to receive. You could be given grants or scholarships, offered a work-study program or approved for federal or private loans.  
  • The amounts for each award. Your letter should be specific about how much each source would contribute. 
  • The cost of attendance. Your letter should include estimates for how much it will cost to attend that particular school, often referred to as the “cost of attendance” or COA. This figure usually will include tuition and any mandatory fees as well as room and board, but it may or may not include the cost of books, transportation or supplies. Also, the number quoted will most likely be the cost of just one year of attendance. Depending on your program, the cost of tuition could fluctuate from year to year. 

What Does Each Type of Aid Mean?

Since there are several ways you can be awarded financial aid, you should have an understanding of how each method differs. 


Grants—often based on need—can be issued by your school, state or federal government, or private or non-profit organizations. The distinguishing factor when it comes to grants is that they don’t have to be repaid. A common need-based grant offered by the federal government is the Pell Grant.


Scholarships are often based on merit, but can also be need-based. They do not need to be repaid although they often require you to uphold certain academic standards to maintain the award.


Many colleges and universities participate in federal and state work-study programs, which allow students with financial need to earn money through a part-time job. Qualified jobs can be on-campus or off-campus, and the amount you earn can’t exceed the amount listed in your financial aid award letter. Not every school participates in a work-study program and schools that award jobs give them on a first-come, first-served basis. 

Student Loans

Student loans allow you to borrow money to attend school. Federal loans can be subsidized or unsubsidized, depending on financial need, and they can be taken out by either the student or the parents. Since you’ll have to repay this money with interest once you’re done with school, you should use loans after other sources of aid are exhausted. One advantage of federal loans is that they often have lower interest rates than loans offered by state governments or private organizations. And you could qualify for some federal loan forgiveness programs in the future. Common names you may see if you’ve qualified for federal loans include Direct loans—sometimes called Stafford Loans—and Direct PLUS or Parent Plus Loans.

How to Compare Offers

College financial aid offers vary depending on each school. If you’re deciding between two or more schools, you can make a table to compare your out-of-pocket costs.

  School A School B
Cost of Attendance    
 - Grants and Scholarships    
 - Work-Study    
 - Student Loans    
 = Your Cost    
Your cost is the balance between the cost of attendance and the aid you’ve been offered. Once you get that figure, you can decide whether you will use funds you’ve saved or look for additional scholarships or private loans to cover the rest.

How do you determine your true cost?

Don’t assume the school has captured the complete picture of how much you will end up paying out of your own pocket.  

  • Check to see if the scholarship or financial aid is on an annual basis, as it may be a one-time gift.
  • Consider every year separately. Depending on your program, the cost of tuition could fluctuate from year to year. 
  • Make sure your cost of attendance includes books, supplies, transportation, childcare and potential costs related to disability. 
  • Make sure you factor in the location when you assess housing costs. Depending on where you are enrolled, the cost of living may vary. 
  • If you are eligible for work-study, don’t forget you have to earn the money before it’s paid, like any other job.