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Guide to Financial Aid Award Letters

Guide to Financial Aid Award Letters

Understand your financial aid award letter.

January 21, 2013

Evaluating an Award Letter

The first thing to do when you receive an award letter is to identify the major cost components at the school and the major components of the financial aid package. The cost figures should include tuition and fees, room and board, books and supplies, transportation and personal expenses. The financial aid package should include grants, work-study, and need-based loans. There may also be non-need-based loans. Total each category separately, so that you can compare the award letters from different colleges on an apples-to-apples basis.

Some educators suggest calculating the percentage gift aid (grants and work-study) in the financial aid package. FinAid does not agree with this advice, as such percentages are at best an imprecise gauge of the factors that matter most to the family, namely how much the college is going to cost. For example, one college may offer a greater percentage grants, but still cost the family more because the total cost of attendance is greater.

FinAid recommends looking at two figures that provide meaningful information about the cost of the college: net cost and out-of-pocket cost:

  • Net cost is the difference between the cost of attendance and the financial aid package, once everything has been put on an apples-to-apples basis. The cost of attendance figures should include all the missing components. The financial aid package should not include any loans that aren’t based on financial need. The net cost figure tells you how much money you will need to obtain from your own resources and non-need-based loans to pay the tuition bill. It is a measure of your cash flow requirements, and should roughly correspond to the expected family contribution (EFC). Since most colleges use the same EFC, the net cost should be similar across all the financial aid award letters. If there’s a significant difference in net cost, it is often a sign that there may be unusual circumstances that were brought to the attention of one college but not the others. (See negotiation and professional judgment for more information.) Financial aid packages are based on financial need, and shouldn’t vary much because the family’s ability to pay is the same for all schools.

  • Out-of-pocket cost is the difference between the cost of attendance and just the gift aid components of the financial aid package (grants and work-study). It excludes all loans from the financial aid package. Out-of-pocket cost is a measure of just how much the college is really going to cost you. It tells you how much money you will spend from savings (including section 529 college savings plans and prepaid tuition plans), current income (including tuition payment plans), and future income (including need-based and non-need-based student loans) in order to pay from college.

Resources for Students and Parents

There are several tools available to help you decode your financial aid award letter. FinAid offers two award letter comparison tools.

  • The Simple Award Letter Comparison Tool compares the financial aid packages from three colleges, highlighting any significant differences. The tool also calculates the net cost and out-of-pocket cost figures defined above, and estimates the lifetime cost of any education loans.
  • The Advanced Award Letter Comparison Tool is like the Simple Award Letter Comparison Tool, but includes non-financial criteria in addition to financial criteria for comparing colleges, letting you see the differences visually in a matrix format.

The FastWeb College Gold book about paying for college includes a chapter about decoding the financial aid award letters, with detailed analysis of two example letters.

The web site FinancialAidLetter.com provides examples of award letters and tools to help decode them. The site was launched by Kim Clark, a senior writer for US News & World Report.

See also Mark Kantrowitz’s, Standardize Financial Aid Award Letters, Inside Higher Ed, June 22, 2007.

See also recommendation #2 in Helping Families Finance College: Improved Student Loan Disclosures and Counseling, Consumers Union, July 2007.


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