Understanding Financial Aid Award Letters
Wednesday, April 30, 2008
As the cost of college continues to rise (tuition at George Washington is closing in on $40,000), the financial award letter can often be just as important as the college acceptance letter in determining where you plan on going to college. Understanding the financial aid award letter will help you and your parents make a well-informed decision about your college future.
We like to refer to the tuition rates you see published on a school's website or in college guidebooks as the "sticker price." As with cars, most people don't end up paying the "sticker price." Colleges offer "discounts" off the "sticker price" in the form of scholarships, grants, work-study, and loans. The financial aid award letter lays out these "discounts". It's not just the size of the "discounts", but the make-up of these "discounts" that's important.
Check out a sample financial aid award letter.
What you want to look for on your financial aid award letter
Financial Aid Letter Part #1: Cost of Attendance
First off, take a look at the make-up of the cost of attendance. Some colleges will break out the expenses into categories like tuition, room and board, travel, and personal expenses. Colleges may differ on what they include in the cost of attendance. You want to be confident you are comparing apples to apples throughout this process. Make sure you are clear on what has been factored into the cost of attendance and, more importantly, what has not been incorporated into the cost of attendance.
Financial Aid Letter Part #2: Expected Family Contribution
Secondly, you want to locate what the school is expecting you and your parents to contribute out of pocket based on the financial aid office's assessment of your and your parents' financial situations. Some schools will provide a single "Expected Family Contribution" while others may break this amount into a Student's Contribution and Parents' Contribution. This is the school basically saying "We looked at your finances, and we think you and your parents can afford to pay $___ toward college."
Financial Aid Letter Part #3: Financial Aid Offered - Amount and Mix
Now, we get to the real guts of the financial aid award letter where the school lays out what types of aid they are offering and how much of each type. This is where you really want to take a good hard look and make sure you understand what's going on. The mix of the financial aid is as important (if not more important) than the amount. Free money (that means scholarships and grants) is the best type of financial aid. Federal loans such as Perkins Loans and Subsidized Stafford Loans are better than private loans, but they still need to be repaid. It's also important to remember that you don't just get federal work-study money. You're going to have to get a job on campus and actually earn that money. The federal work-study amount on your letter is the maximum amount you can receive, not a guaranteed amount. So to recap, here are the financial aid types from best to worst:
- "Free Money"... that's scholarships and grants (renewable scholarships are better than one-time awards)
- Federal loans (Perkins, subsidized Stafford, unsubsidized Stafford)
- Private loans
Financial Aid Letter Part #4: Unmet Need
Okay, so now you understand how much financial aid the school is offering and what types of aid are included in your package. The next step is determining if there is any unmet need. You can determine the unmet need by taking the cost of attendance and subtracting the expected family contribution (what the school said you can afford to pay) and the financial aid package (what the school has offered you to meet your financial need).
In mathematical terms:
COA - (EFC + Financial Aid) = Unmet Need.
Typically the lower the unmet need, the better. However, as we said before, a school may be offering less aid and leaving you with more unmet need, but may actually still be a better deal if their financial aid package contains mostly "free money" and fewer loans.
Questions You Should Ask
How will my financial aid package change over time?
The package you receive your sophomore year may look different than the one you receive for freshman year. Find out whether scholarships are renewable or one-time awards. See if there are certain requirements for keeping scholarships (e.g., maintaining a 3.0 GPA).
How do outside scholarships affect my financial aid package?
If have done a great job searching for scholarships and have won a few awards, make sure you understand how these scholarships will impact your package. Some colleges will reduce the loan component to offset these outside scholarships, while others will unfortunately reduce the scholarship / grant component of your financial aid package. Colleges will usually spell out this information in their Outside Scholarship Policy.
Some Help Comparing Financial Aid Packages
So now you know what to look out for when comparing financial aid packages, and all you need is a tool to help you compare them. Well, you are in luck. We've developed a Financial Aid Award Evaluator so you can view side-by-side comparisons of your financial aid award letters for up to 4 colleges.
We also offer a tool to help you compare student loans. Our Student Loan Marketplace enables you to dig into the guts of a student loan and really understand how all the parts of a loan (interest rate, up-front fees, borrower benefits) come together to impact how much you actually have to pay.
Labels: award letter, EFC, financial aid, financial need, unmet need
Finding and Comparing Student Loans
Tuesday, April 8, 2008
For many of you, taking out student loans is a necessary part of going to college. You're probably already receiving letters and e-mails from student lenders, highlighting the "benefits" of their student loan program. It's no easy task sorting through all your options.
Which Student Loan is Best
Navigating your way through the maze of private student loan options can be difficult, even if you're a math genius. One lender is offering you money back when you graduate. Another lender lowers your interest rate if you set up bill payment by auto-debiting your bank account. How do you decide which student loan is best for you?
Student Loan Marketplace
It just so happens that CollegeToolkit.com now has a tool to help you make apples-to-apples comparisons of Stafford, PLUS, and Private loans. It can be difficult to compare loans that may have different interest rates, origination fees, and borrower benefits. Student loans have lots of moving parts and figuring out which option is better for you can be a dizzying task.
Our Student Loan Marketplace makes it easy for you to find a whole bunch of loan options in one place and then compare them side-by-side. We even help you make sense of all the ins and outs by providing a single number called a Loan Cost Index that you can use to make comparisons about which loan may be the best for you.
What is the Loan Cost Index?
Our Loan Cost Index gives you a quick sense of how costly a loan is (in today's dollars). Think of it as kind of like a price tag for a student loan, the lower the number the better. We want to help you become a bargain hunter when it comes to student loans.
Let's walk you through a quick example. You select a student loan with a Loan Cost Index of 125. That means that for every $100 in student loans that you take out, you will be repaying $125 (in today's dollars). Our Loan Cost Index takes into account the interest rate of the loan, any borrower benefits for the student loan, and any upfront fees as well as other factors like in-school and grace periods.
The Loan Marketplace also lets you customize the results. If you want to exclude all borrower benefits, you can. If you plan on making interest payments for your private loan while in school, that's possible, too.
The Loan Marketplace is intended to help you make good decisions when it comes to picking the best student loan for you and your parents.
A Word of Advice about Student Loans
One thing we hope you keep in mind before you start your search for private loans, make sure you take advantage of more affordable funding options first. That includes, searching for scholarships and taking advantage of federal loan programs like Stafford loans. Once you've done that, you're ready to turn your attention to private loans.
Labels: comparing loans, financial aid, PLUS loans, private loans, Stafford loans, student loans
Private Student Loans a Larger Share of Education Finance Pie
Friday, November 16, 2007
So, by now, you know all too well that college costs are growing at a pretty rapid clip... by over 6% at both public and private 4-year colleges this year. So how have college-bound students and their parents been dealing with this increase in tuition. It turns out that the most common method has been private loans. Unfortunately, taking out a private student loan is the most costly way to finance a college education (except for credit cards, but we hope none of you are putting your tuition bill on your credit card).
Over the last 10 years, federal aid programs for undergraduates have grown by an average of 5.6% a year, according to the College Board. Not too bad... the federal government seems to have been chipping in some extra dough for students to go to college over the last decade. However, over that same period, private loans used to finance a college education have grown at a rate of more than 25% a year, according to the College Board.
We don't want to harp on the negatives too much, but some of the most generous federal programs have actually taken major hits the past 2 years. Pell grants and Perkins Loans, which are targeted at the lowest-income students, have actually been declining since 2005. The most recent student loan legislation will help reverse some of these trends, though, by providing significant increases in Pell grant funding over the next 5 years.
Private student loan debt is still going to be a reality for most college-bound students and their parents (unless you attend one of the handful of schools moving toward no-loan aid packages).
How to Minimize Private Loan Debt
1. Recognize that not all loans are created equal
You want to make sure you take advantage of all the federal and state loan programs before you venture into the world of private student loans. These government-sponsored programs almost always offer better interest rates and more favorable terms than private lenders. For Perkins and subsidized Stafford loans, the government covers the interest payments while you're in school, which can make a big difference.
Learn more about the effects of interest and capitalization on your monthly loan payments using our Loan Capitalization Calculator.
2. Exhaust other financing options
Make sure that you take advantage of all the other financing opportunities out there. Don't forget to do a scholarship search to uncover relevant awards. You might also want to consider a part-time job while you're in school to help reduce your private student loan burden.
3. Create a realistic budget and stick to it
We know that you want to have fun while you're in school, but make sure your spending isn't getting out of hand. While a private lender will let you take out a student loan to help cover tuition and additional college-related expenses, remember that you're going to have to pay this money back down the road... with interest. You should consider ways that you can lower your expenses. For example, living on campus may be an option worth considering since you will likely only pay 9 months of rent (vs. committing to a 12-month lease for an off-campus apartment).
4. Be an educated consumer
Don't just go with the private lender that sends you the best brochure. Take the time to see what options are available to you. We offer a free tool to help you compare student loans. Some lenders will tell you about all the great borrower benefits that they have. Take a step back, read the fine print, and ask questions. Sure, a private lender may offer an interest rate reduction after 36 on-time payments, but find out what percentage of borrowers actually make that many on-time payments. What happens if you miss a payment or two? What are the origination and application fees? What happens if you need a deferment?
While we hope you are able to finance your education without private loans, your education is an investment in your future and it may be necessary to take out private student loans as part of this investment. Keep in mind that private student loans are not free money. Make sure you are responsible and do your homework.
Labels: borrower benefits, financial aid, student loans
Amherst Joins Princeton and Davidson on List of No Loan Colleges
Saturday, October 27, 2007
Graduating college debt-free... that sounds pretty incredible, doesn't it? No student loan debt seems too good to be true. Well, Amherst joined Princeton and Davidson this summer as the only colleges whose financial aid packages do not include any student loan component... that's right. Any student can graduate Amherst, Davidson, or Princeton without a penny in student loans. These three colleges do not put any limitation on income levels that qualify for their programs.
At these three colleges, your financial aid package will be made up entirely of work-study and grant aid. The way these programs basically work is this... You complete the financial aid forms and receive an assessment of your EFC (Expected Family Contribution). The difference between your EFC and the Cost of Attendance is your financial need. These colleges are basically promising that the financial aid package used to cover your financial need will not include any student loans. You and your parents will still be responsible for covering the EFC portion and may choose to take out student loans to cover some of your expected family contribution. That's up to you, but the Amherst and Princeton are doing what they can to make it feasible for you to graduate debt-free.
The programs at Amherst, Davidson, and Princeton are the most generous of a new wave of financial aid initiatives aimed at eliminating or minimizing student loan debt. Several colleges and universitites, (including Harvard, Brown, Columbia, Penn, and Emory) eliminate student loans for low-income students. Some state schools (such as Michigan State, Indiana, and UNC-Chapel Hill) offer similar programs for low-income students from within their respective states.
If you want to see a fairly comprehensive list of U.S. colleges and universities who have created programs to help students graduate debt-free, take a look at the Project on Student Debt's website.
Labels: Amherst, award, Davidson, debt, EFC, financial aid, financial need, Princeton, student loans
Decoding Financial Aid: Making Sense of All the Financial Aid Jargon
Friday, October 12, 2007
If you've started down the path of figuring out how to pay for college, you've probably been bombarded with words like EFC, COA, Unmet Need, and more. Is the assortment of financial aid acronyms and terms making your head spin? Well, hopefully we can help shed some light on all the alphabet soup of financial aid lingo and show you how all these financial aid terms fits together.
First, let's start off with the least enjoyable aspect of the college process... paying the bill. The COA, or Cost of Attendance, represents the total amount it will cost you to attend college. This number is expressed as a yearly figure. The COA includes:
- Tuition and fees
- On-campus room and board or a housing and food allowance for off-campus students
- Allowances for books, supplies, transportation, and loan fees
In addition to the above, cost of attendance may include the following (if applicable):
- Dependent care (this may be for students who have children)
- Costs related to a disability
- Miscellaneous expenses, including an allowance for the rental or purchase of a personal computer
- Reasonable costs for eligible study-abroad programs
Fortunately, most students and parents are not expected to pay the entire Cost of Attendance right away out of their own pockets. The federal government uses the FAFSA (Free Application for Federal Student Aid) and many schools use the CSS Profile to determine the Expected Family Contribution (or EFC). The EFC is basically an assessment of how much money you and your family can contribute toward paying for college. The FAFSA and CSS Profile take into account your income and assets and, if you are a dependent, the income and assets of your parent(s).
Your financial need is the difference between the COA and the EFC. It's the help that you need to fill the gap between what you can afford and what college actually costs.
| | Cost of Attendance |
| — | Expected Family Contribution |
 |
| | Financial Need |
This brings us to financial aid. Financial aid is typically focused on addressing your financial need, helping you and your family bridge this gap between the cost of going to college and your family's ability to pay.
Financial aid can be broken down into 3 main categories.
- Scholarships / Grants
Scholarships are the most attractive form of financial aid. Scholarships are essentially financial aid that does not have to be repaid. Scholarships are sometimes referred to as gift-based aid. - Loans
Loans are basically financial aid which must be repaid with interest over a period of time. Loans help you spread the cost of college over a more manageable time frame. Government sponsored loans, which include Perkins, Stafford, and PLUS loans, are typically the lowest cost loans for you and your parents. - Employment / Work Study
Work study is financial aid which requires you to work while attending school to contribute toward the cost of education. While, yes, it does requires you to work, work study or other employment may offer additional benefits to you over other forms of financial aid. You will likely develop improved time-management skills and build up good experience for your resume.
Now that leads us to the last term we're going to cover... Unmet Need. This is the leftover portion of your financial need after your financial aid package is factored in.
| | Financial Need |
| — | Financial Aid |
|
| | Unmet Need |
Some schools will try to cover all your financial need leaving you with no unmet need. A few colleges that make this effort include Harvard, Bucknell, and Franklin and Marshall. However, the financial realities of most colleges make it difficult for them to meet all your financial need. In this case, you might need to resort to private loans to cover your unmet need. We recommend that you consider all available options, including searching for scholarships and getting a part-time job, before you take on significant student loan debt. Remember, loans aren't free. You'll have to pay this money back (with interest) when you graduate.
We hope we've helped bring a little clarity to the jumble of terms you're running across as you look into ways to finance your college education.
Labels: COA, EFC, financial aid, financial need, scholarships, student loans, unmet need
The Search for Scholarships
Friday, October 5, 2007
So I'm sure you are fully aware that college isn't cheap... in fact, college is one of the biggest expenses you are likely to encounter during your entire life. If you are like most college students, you are trying to minimize your out-of-pocket expenses and student loan burden. This is where scholarships can come into play. Scholarships are your source of "free money"... that is, money you don't have to pay back.
So your next question is probably "Where can I find scholarships?" Unfortunately, most scholarships won't just fall into your lap, but that doesn't mean there isn't scholarship money out there for you.
Scholarship Search Stop #1: Colleges
The first place to search for scholarships is by checking with the college you are attending (or hope to attend). Often times, the admissions application itself serves as the scholarship application. In some cases, schools have a separate scholarship application you may need to fill out. You also want to check with the various departments because they may have their own major-specific scholarships as well. If you're lucky, your school could even have scholarships you automatically win based on your SAT, ACT, or GPA. Some schools use scholarships like this to attract top-notch students who might otherwise go elsewhere.
Scholarship Search Stop #2: Local Organizations
Okay, so now you are off and running with your scholarship search. Where to next? Check for scholarships that are focused on your geographic area. Stop in at your counselor's office and see if there is a list of scholarships for students at your school. If you have a community foundation in your area, they often have scholarship programs for local students. Other community organizations that often fund scholarships include Lion's Clubs and Kiwanis Clubs.
Scholarship Search Stop #3: Member Organizations
Now you've really gotten the ball rolling and are looking for the next stop on your scholarship search... it's membership organizations. Often times, clubs, unions, or other membership organizations offer scholarships to both their members and children of their members. If your parents are part of a professional organization like the Society for Manufacturing Engineers or an AFL-CIO union, ask them to inquire about scholarships. Do you work for a large corporation like McDonald's? Did you know they offer scholarships? Your parents' employers may offer tuition assistance programs as well.
Scholarship Search Stop #4: Internet and Scholarship Search Engines
Finally, you shouldn't forget to use the internet and scholarship search engines like College Toolkit to help you track down scholarship opportunities. Scholarship search engines typically require about 5 minutes of up-front effort completing a scholarship profile to help you find a personalized list of scholarships.
So there it is. You now have a roadmap for your scholarship search. Good luck! I hope you track down lots of free money!
Labels: financial aid, scholarship search, scholarships
Common Scholarship Application Mistakes
Filling out scholarship applications is no one's idea of a good time. I'd rank it up there with studying for a Calculus final as things I'd rather not be doing on a Sunday afternoon. However, if you want to get some extra money to help pay for college, it's a necessary evil.
If you are going to spend the time applying for scholarships, the least you can do is make sure you turn in a quality application. Otherwise, you're probably wasting your time trying to win the scholarship.
I've been involved in several scholarship programs and here are a few tips to help you avoid common mistakes on scholarships applications.
Don't submit your application until you have had someone else proofread it
You want to put your best foot forward for the scholarship committee. They don't want to award the scholarship to someone who doesn't take the time to make sure their essay doesn't have a zillion typos or who misspells the name of the scholarship five times. Before you turn in your scholarship application, it's a good idea to ask a parent, a teacher, or a counselor to take a look at any essays. Even if you are a top-notch writer and proofreader, it often helps to have a fresh set of eyes look over your scholarship application.
Make sure you answer the questions being asked
The scholarship committee has selected the questions on the application for a reason. There are certain qualities they want from their scholarship recipients. If they ask you to write about an experience where you overcame an obstacle, don't write your scholarship essay about how your dad is your hero. It's easy for a scholarship committee to tell when you wrote an essay for a class and just copied and pasted it into the application form, ignoring what the question is really asking.
Read the directions carefully
Don't assume that every scholarship application is the same. Each scholarship has its own deadlines and its own requirements. Slow down and take a minute to read the directions on the scholarship application. If they want all materials submitted by March 31, chances are that you are wasting your time submitting a scholarship application on May 1. If you're unsure about something, contact the organization offering the scholarship. A little time upfront can often save you lots of time and help you avoid headaches down the road.
Double-Check to make sure you are submitting all required materials
Most scholarships get more qualified applicants than they can award money to. It's often a tough process picking who should win a scholarship award. One way to make it easier for the scholarship committee is to turn in an incomplete application. While some organizations may be nice enough to track you down and ask you to submit any missing information, I wouldn't count on it.
Only apply if you qualify
It sounds so obvious yet I've seen so many scholarship applications where a student simply ignored the eligibility criteria. You may really want to win that $10,000 scholarship, but if you don't qualify, you're wasting your time by applying. Focus on scholarships where you have a chance to win rather than hoping that the committee won't notice you are a college freshman not a high school senior.
Scholarships can be a great way to bring down the cost of college so don't ruin your chances by being making these common mistakes.
Labels: applications, common mistakes, financial aid, scholarships