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
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