Tips for Evaluating Financial Aid Award Letters
Financial aid award letters provide college students with information about college costs and the types and amount of financial aid the student will receive. Families rely on the financial aid award letters to help them understand college costs and compare costs among different colleges. But financial aid award letters can sometimes be confusing.
Fastweb surveyed about 580,000 college freshmen and sophomores and their parents about financial aid award letters, to evaluate the need to standardize the content and formatting of financial aid award letters.
Although nearly two-thirds of the respondents said that the financial aid award letters were clear and easy to understand, more than half said that the financial aid award letters from different colleges were difficult to compare.
The letters were inconsistent in their inclusion of college cost information, with only two-thirds including a cost of attendance figure and only about two-fifths of those including a detailed breakdown of the cost of attendance. Very few financial aid award letters included complete college cost information.
When the financial aid award letters did include detailed cost information, this information was often inaccurate. Almost three-quarters of survey respondents said that the transportation cost figures were not realistic, and nearly two-thirds said that the textbook costs were not realistic.
More than half of the financial aid award letters lacked an out-of-pocket cost figure. The out-of-pocket cost is the difference between the cost of attendance and all grants and scholarships. It represents the family’s bottom line cost of college, the amount of money they will have to pay from savings, current income and loans.
When loans were listed on the financial aid award letter, they often included just the loan amount and not basic cost information such as the interest rate, loan term, monthly payment, total payments and total interest.
It’s no wonder that almost seven-eighths of the students and parents said that financial aid award letters should be standardized to make them easier to understand and to compare.
There are a few basic tips on comparing financial aid award letters.
1. Obtain detailed cost of attendance information, including separate figures for tuition and fees, room and board, books and supplies, transportation and personal expenses. If these figures do not appear in the financial aid award letter, you should be able to find them in the college’s catalog or on its web site.
2. Make sure that the cost figures are realistic. If you will be commuting, the transportation figures should be based on the distance from home to school, the IRS mileage rate and the cost of parking on campus. If you will be living on campus, assume the cost of two trips home. Use the same textbook cost figures for all colleges.
3. Clearly identify the type of aid for each source of aid. Is it loan, grant, scholarship, work-study or student employment?
4. Calculate the out-of-pocket cost yourself. Some colleges may present a net cost figure, which subtracts all aid from the cost of attendance instead of just grants and scholarships, instead of an out-of-pocket cost figure. Other colleges will use loans to satisfy unmet need.
5. Compare colleges based on the out-of-pocket cost. If the difference in out-of-pocket cost is less than $1,000, it should not affect your choice of college. But if it is more than $5,000, you should consider the out-of-pocket cost along with other criteria for choosing a college. Higher out-of-pocket costs lead to more debt at graduation and increase the chances you’ll borrow too much to pay for your college education. Education debt has an impact on your career choices and lifestyle after graduation.
FinAid has two tools for comparing financial aid award letters, a simple award letter comparison tool and an advanced award letter comparison tool. FinAid also has a helpful Guide to Financial Aid Award Letters.