How to help your students read an award letter

December 13, 2017

After students submit their Free Application for Federal Student Aid (FAFSA), they’ll receive financial aid award letters from each school they’ve been accepted to. These letters outline how much they will pay for their first year at the school. Here’s a guide to going through them and comparing awards.

Determine the cost of the institution
The first thing you want to make sure your students understand is the cost of education at the institution they are considering. You may see direct costs or total Cost of Attendance (COA) listed on the financial aid award letter.

  • Direct costs are billed charges, tuition, fees, room and your meal plan.
  • Cost of Attendance (COA) includes direct costs plus estimated costs for things like books, travel, and personal expenses.

Scholarships and Grants

Scholarships and grants are money that your students don’t pay back. They could be based on financial need from their FAFSA, or merit or talent-based scholarships. Some states offer state grants and the federal government also awards the Pell Grant, which is based on the family’s income.

To calculate the student’s net cost, subtract their total gift aid from the direct costs. This will show the student how much they will owe the college after gift aid.

Options to pay the remainder

Encourage your students to apply for outside scholarships—they’re a great resource to help reduce the student’s out of pocket costs. Make sure they check with colleges to see how they handle outside scholarships, as they may have different policies.

If there is still a remaining cost to cover, students should consider what payments they or their parents may be able to make on a monthly or semester payment plan. If they can’t cover the balance due with payments, they’ll likely have to consider loan options.

Self Help Aid: Loan Options and Work-study:

Loans are available for students and parents to help cover the remaining balance.

The amount students can borrow from the federal government—usually at a lower interest rate than private loans—should be stated in their award letter. There are three different types of federal loans you may see on a financial aid award letter. If students are borrowing they should always take advantage of their federal loans first.

Students that have filed the FAFSA will be eligible to borrow either the federal subsidized or unsubsidized loans through the Department of Education. Subsidized loans don’t accrue interest while the student is enrolled, but unsubsidized do.

If the student needs additional funding, then families need to decide if they want to borrow a Parent PLUS loan or a private loan. If a family is considering both options, it’s a good idea to apply for a private loan to compare interest rates with the PLUS loan.

  • Parent PLUS loans—These are loans from federal government. The parent is responsible for the loan. Interest starts accruing right away. These loans may be included on the financial aid award, so make sure your students understand that this is a credit-based loan that their parents will have to apply for.
  • Private Loans—These loans are through banks. They can be in either the student or parent name. Usually, student borrowers need a cosigner with good credit. Interest rates will depend on the credit of the borrower (or the co-signer).

Work-study

The letter may include a federal or institutionally funded work-study award. This allows students to work on campus to earn money for their college costs. The amount is not a guarantee of funds, rather what a student is eligible for. Students are typically paid for the hours they work and funds aren’t directly applied to their student account

Comparing Aid Packages

There’s no standard approach to award letters, so comparing them can be tricky. Here are a few tips:

  • Be sure the costs listed contain the same elements for each college.
  • Identify the gift aid and the self-help aid on each award letter. Total up all gift aid and all self-help aid so the student understands how much of each they’re getting at each institution.
  • Run the numbers for each college. Subtract the gift aid from the college’s cost to see their net price. Depending on the coast of attendance at each institution, the school that awards the most gift aid may not be the lowest cost institution. The student may not choose the college with the lowest net price, but the information can be invaluable when making their final college decision.
  • Think long term about aid. While students are given financial aid information for one year, encourage them to think about how much aid they will get and what they may need to borrow over the four years they’ll be in school. Keep in mind that each year costs could increase. Make sure they understand which scholarships and grants are renewable and what requirements they may have.

For easier comparisons, your students may want to use the College Board award comparison tool—it lays out the cost of attendance, financial aid, and final net price for institutions using information that should be available on the student’s award letter.