How to Evaluate College Financial Aid Award Letters

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Mark Kantrowitz

By Mark Kantrowitz

March 3, 2021


College financial aid award letters are confusing. Many financial aid award letters do not provide all of the cost and aid information you need to determine if the college is affordable. Some financial aid award letters understate the costs and overstate the amount of aid. Financial aid award letters also use cryptic terms to refer to student loans, with many not even using the word “loan.”

These tips can help you interpret financial aid award letters to evaluate the financial fit of prospective colleges.

Understanding Your Financial Aid Award Letter

Even if the college includes the cost of attendance (COA) on the award letter, it may not include all college costs. Some colleges list only tuition and fees, and possibly also room and board for students who live in college-owned or operated housing. They omit other “indirect” costs that are not paid to the college, even though financial aid is based on the full cost of attendance.

Calculate the college costs for yourself

Make sure the cost of attendance includes figures for tuition and required fees, room and board, books, supplies and equipment, transportation and miscellaneous personal expenses. Check whether or not the cost of attendance includes the cost of a computer and student health center fees. If any figure is missing, look for it on the college’s web site or call the college’s financial aid office.

Personalize the transportation costs

Most colleges use the same transportation allowance for all students. But, some colleges are closer to you and some are further away. Use Google Maps to calculate the distance from home to the college. Multiply the round-trip distance by the IRS standard mileage rate, which is a bit more than 50 cents a mile. It may be cheaper to fly or to take a train or bus, but for a quick estimate, this approximation will be reasonably accurate for most college students. If you are a commuter student, multiply by the number of days in the academic year, typically 150. Otherwise, assume four trips home from school (e.g., spring break, summer break, Thanksgiving break and winter break).

Standardize the textbook costs

Some colleges underestimate the actual cost of college textbooks, others don’t, leading to an unfair comparison. Set a standard cost for all colleges by assuming that you will spend about $1,500 a year on books, supplies and equipment. This does not include the cost of a computer, software, peripherals and internet access.



Beware of hidden college costs

Miscellaneous personal expenses is a catch-all “other” category that can vary a lot among colleges. Budget $300 to $500 per month for these extra hidden college costs.

Identify the gift aid in the award letter

Gift aid includes grants, scholarships, tuition waivers and other money that does not need to be earned or repaid. Gift aid is a discount off of the college’s sticker price. Ignore any form of financial aid that is not known to be a grant, scholarship or other gift aid. If you are unsure, call the college’s financial aid office to confirm.

Check whether the college practices front-loading of grants, which involves giving a better mix of grants during the freshman year than during subsequent years. If you’ve won a lot of private scholarships, ask about the college’s scholarship displacement policy. Adjust the gift aid accordingly.

Calculate the net price by subtracting just the gift aid from the cost of attendance

The net price is the actual amount you will have to pay in total, including any unmet need. The net price recognizes that student loans do not reduce college costs because they must be repaid, usually with interest.

Repeat this process for each college. Use the net price to compare the colleges with each other, to see which colleges are more or less expensive than the others.

How Much Will College Actually Cost?

Really big differences in net price among colleges may be due to the consideration of special circumstances that affect your ability to pay for college. Special circumstances include differences in your family’s financial situation from the prior-prior year to the present. Special circumstances also include financial circumstances that differentiate your family from the typical family. If your family is affected by special circumstances, appeal for more financial aid and recalculate the net price after your financial aid package is adjusted.

Also compare the net price, which is an annual figure, with the total resources you have available to pay for college. Multiply the net price, after adjusting for the front-loading of grants and scholarship displacement, by the length of your educational program.

Resources include college savings, how much you can contribute from income and an affordable amount of student loan debt. If the net price exceeds the resources, the college is unaffordable and you will have to dig deeper or borrow too much to pay the college bills.

What If Financial Aid and College Savings Aren’t Enough?

If you didn’t save enough for college and financial aid falls short, consider enrolling in a less expensive college. Try to keep your total student loan debt less than your annual income. If you must borrow to pay for college, borrow federal first, because federal student loans are more affordable and easier to repay than private student loans. Then consider borrowing private student loans or parent loans to fill the gap. Be sure to shop around, to find the lowest cost loans.

A good place to start:

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