Waiting for a college financial aid award letter from a high schooler’s favorite college is a rite of passage for both the student and the family.

A financial aid award letter stuffed with valuable financial aid offers is akin to hitting the lottery. On the other hand, a financial aid package that falls significantly short of what the family needs is like getting a root canal, without Novocain.

Usually though, a college financial aid award letter – a college’s response to the family’s completed FAFSA form – falls somewhere in the middle. In fact, many financial aid letters leave mom and dad scratching their heads in confusion and unsure if what they’re seeing is a good or bad financial aid package.

That’s understandable. A 2018 study by New America and uAspire, which analyzed thousands of college financial aid award letters, affirms that aid letters can be difficult to understand.

Any resulting confusion from parents and student regarding their financial aid letter could easily lead to bad decisions being made about where junior is headed to school and how the family is going to pay for the experience.

The New America study spells out just how confusing college financial aid letters can be, pointing out that colleges routinely either use confusing terms for loans or omit the term “loan” entirely. Even financial aid experts have trouble deciphering financial aid award letters.

Additionally, the study found that one-third over 500 letters reviewed did not include any cost information with which to contextualize the financial aid offered, and that about 15% of letters included a Parent PLUS loan as an “award,” making the financial aid package appear far more generous than it really was.

Financial aid award letters often blur the distinction between grants and loans. Grants are a form of gift aid, which does not need to be repaid. Student loans must be repaid, usually with interest.

Signs You’re Getting a Lousy Financial Aid Package

To better understand the results of a college financial aid letter, no matter how unartfully written, incoming college students and their families need to not only know how to recognize a good financial aid package, but also know a lousy financial aid package when they see it.

To get that accomplished, it helps to know the “red flags” that stand out telling parents this financial aid package is a non-starter – or at least a letter that requires some explanations from the college in question.

Here are five common, but often undetected, red flags that tell you your college student is getting a raw deal, financial aid-wise, from an award letter.

Your merit aid has an expiration date. Getting merit aid based on superlative academics or success in art, music and athletics, among other fields, is certainly a net positive for students and families.

Make sure to look closely at the merit aid language. If the letter says the merit aid is conditional or that it’s only good for one year, or that it’s not applicable after you take a semester abroad, then you’re not getting the full four-year value. Make sure you factor in those limitations when selecting a college.

Look for the bait and switch. In a similar fashion to merit aid, many colleges will offer an abundant – at first glance – amount of financial aid, complete with a healthy package of grants and scholarships. But, the great grant and scholarship money is just for the first year, and will significantly decrease during subsequent years at the school.

Colleges do this to entice students and families with a glittering, front-loaded financial aid package, then pull the rug out from under you. Consequently, the all-important net price of attending the school looks great the first year, but not so great the years after that. If your student gets an award letter that’s similarly front-loaded, you’re not getting the deal you might think you’re getting.

Even if the grants and scholarships are renewable, they might not increase in the second, third and fourth years when college tuition and fees increase.

The problem is you won’t know if the award letter cash is a one-year deal or not unless you check with the school and ask about aid the following years.

A candid talk with a college admissions advisor should clarify the issue. Specifically, make sure to ask about the percentage of students receiving scholarship and grant money, and the average award amount, for freshman at the college compared to sophomores, juniors and seniors. If the dollars dive significantly after the first year, you’re likely being front-loaded by the school.

Your award letter is “loan heavy.” Some college award letters also have a “smoke-and-mirrors” appearance, where you’re led to believe you’re getting more money than you actually are.

Typically, colleges lump all of their financial aid figures together, making it difficult for families to figure out what they’re getting. Colleges often combine scholarships and grants along with student loans to convince students and parents they’re covering the cost of attendance (COA) when that’s really not the case.

That’s because loans, unlike grants and scholarships, have to be paid back, and with interest. Loans do not cut college costs.

It’s always a good idea to sit down, preferably with a financial expert with experience breaking down college award letters, to separate loans from grants, scholarships and work-study money, so you know exactly what award money needs to be paid back and what money doesn’t.

Some colleges like to argue that some loans are based on financial need. But, even though these loans might be slightly less expensive, they still need to be repaid, with interest.

Parent PLUS loans and private loans really aren’t an award. Some college financial award letters will bundle Parent PLUS loans and private student loans in with other financial aid, like grants and scholarships. Colleges do that to make it appear that the financial aid figure is significantly higher and that the student and family will have to pay less to attend that college.

The fact is, Parent PLUS loans and private student loans aren’t guaranteed. For starters, they’re highly dependent on the borrower’s credit history. If a parent doesn’t have good credit, then a Parent PLUS loan may not be an option. In addition, Parent PLUS loans come with higher interest rates than traditional federal student loans, and also don’t come with all of the attractive features of federal student loans.

If you see a Parent PLUS loan listed on your financial aid award letter as a source of financial aid, speak up and ask why you can’t get more money from the school in the form of grants, scholarships and work study.

The letter doesn’t explain the “net price” of attending the school. Financial aid letters can be crammed with so much jargon and misleading figures that students and parents can’t really figure out what they’re obligated to pay for college.

What’s missing on many award letters is the net price for attending the school. The formula for the net price, which should be spelled out on every award letter, is net price equals the difference between the full cost of attendance and just the grants, scholarships and other gift aid that does not need to be repaid. That’s your real cost of college.

Note that net price isn’t the same as net cost, which is the cost of attendance, minus gift aid and so-called “self-help” aid, which is basically student loans and work-study funds, which is either money that has to be repaid or earned through work at the university.

One way to make the correct distinction between net price and net cost is to view the net price as the discounted sticker price for attending the college. That’s the money you will have to spend from savings, income and loans to send your son or daughter to that college.

A Good Financial Aid Letter

Any college financial aid letter should be clear and concise, and include the exact information you need to figure out what it’s really going to cost you to send your child to the college.

In a perfect world, that letter would include:

  • The exact cost of attending the school, including a breakdown of the tuition and fees, room and board, books, supplies and equipment. Parents should separately factor in the travel costs to and from the college, as well. Also figure on $300 to $500 in miscellaneous expenses per month.
  • Total free money in the form of grants and scholarships, broken down into exact figures.
  • The net price of attending the college, which is the difference between the two previous totals.
  • Any work study money available, with an exact figure.
  • Then, various types of loans and tuition installment plans should be listed as options for covering the net price. The loans should specify the exact type of loan, the exact amount, and the interest rates attached to the loan.

If you open your student’s financial award letter and aren’t clear on any of the above points, it’s time to get in contact with the college’s financial aid office and get some solid answers on not just what the letter says, but what the letter means, as well.