Guide to Financial Aid Award Letters
Understand your financial aid award letter.
January 21, 2013
After you submit your application for financial aid, you will receive a financial aid award letter from the college(s) to which you applied, typically in early to mid-April. This letter spells out the details of your financial aid package.
A financial aid package is a collection of different types of financial aid from multiple sources. It is intended to help you fill the gap between your ability to pay (your expected family contribution or EFC) and college costs (the cost of attendance or COA). It is based on your financial need, the difference between COA and EFC.
After you receive the award letter, you may be asked to return a signed copy of the letter in which you accept or reject each source of financial aid. The college will not increase other aid to compensate if you reject part of the financial aid package, such as loans. (FinAid recommends accepting the Perkins and Subsidized Stafford Loans, as these are very low cost loans based on financial need. The government pays the interest on both loans while the student is enrolled in college at on an least half-time basis.)
Problems with Award Letters
There is no standard format for award letters, making them difficult to interpret and to compare and contrast. Some common problems include:
- Differences in definitions of cost of attendance. Some colleges don’t even include the cost of attendance on the award letter. Others include just tuition and fees, but omit room and board. Others include room and board in addition to tuition and fees, but don’t include other costs, such as books and supplies, transportation and personal expenses. Some spell out all the major components, while others just report a single total figure.
Even when the award letter includes all the costs, there may be significant differences in individual cost components. For example, transportation costs may vary depending on whether the college is close to home or halfway across the country. Colleges may also underestimate certain costs, such as textbook costs, in order to make their financial aid offer appear to be more generous.
- Difficulty identifying award components. Sometimes award letters use cryptic acronyms to identify components of the financial aid package, without spelling out which are loans, which are grants, and which are work-study. When loans are included, the colleges rarely highlight the terms of the loans (interest rates, fees, years to repay, in-school deferment, subsidized vs unsubsidized interest) on the award letter. Some loans may appear to be need-based loans awarded by the college, but a really co-branded private student loans.
- Front-loading of grants. Some colleges will include more grants in the award letters sent to freshmen, with the balance between loans and grants shifting toward loans in later years. This is partly because the Stafford Loan limits are lower for freshmen and sophomores, and partly because of a desire to minimize the amount of debt of any student who drops out during the first year. But it can also make the first financial aid package appear more attractive to prospective students. So ask the colleges whether you can expect to receive a similar amount of grants in subsequent years if your financial circumstances are similar.
- Gapping. Some colleges do not meet the full demonstrated financial need of all students, but instead leave a gap. This usually occurs at colleges with limited student aid budgets. The colleges that practice gapping do not highlight the gap and often try to mask it by including non-need-based aid as part of the financial aid package.
- Packaging of non-need-based aid. Certain loans, such as the unsubsidized Stafford loan, the PLUS loan and private student loans, are intended to help families pay for the family contribution. These loans are available to everybody, without regard to financial need. Colleges sometimes include these on the award letter, to ensure that families are aware of these borrowing options. But it makes it more difficult to compare award letters, when one college packages the PLUS loan and one does not. You are eligible for these loans at every school, even if they are not listed on the award letter.
- Listing specific lenders on the award letter. You are not required to use a lender recommended by the school. You can use any lender. It pays to shop around, as lenders offer a variety of loan discounts that can save you hundreds or thousands of dollars over the lifetime of the loan. See preferred lender lists for additional information.
If you win any outside scholarships, you have to tell the college about them. Unfortunately, federal regulations require the college to reduce your need-based aid package when you win an outside scholarship or other ‘resource’. Colleges do, however, have some flexibility in how they reduce your financial aid package. Many will use the outside scholarship to first fill any gap, and then use half the funds to reduce loans and half to reduce grants. Ask the college for information about it’s outside scholarship policy if this will affect you.