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How to break down college financial aid award letters

Financial aid award letters can be complicated. Here are tips from experts on how to decipher them.

Once your teen has been accepted to college, they will receive a financial aid award letter. An award letter is a detailed statement of financial assistance available to a student in the form of scholarships, grants, federal loans, and work-study. The money offered in the letter is based on the student’s financial need and is determined by the information the family provided in their Free Application for Federal Student Aid (FAFSA) application. Also included in the letter is the cost to attend the institution, the family’s expected contribution, and in some cases the remaining amount of money needed. While award letters sound like your student has hit the jackpot, not all of the figures listed on the letter are “gifts.” Therefore, you want to take a close look at all of the numbers to identify how much the school is actually going to cost over the course of four years. Each year that your student is enrolled in school they will receive a new financial aid package based on their FAFSA application.

First things first, contact your student’s financial aid office

Looking at award letters can be tricky.

Brendan Williams, Director of Knowledge at uAspire, a Boston-based nonprofit that provides free financial aid advice to students and their families, says to contact the school if you don’t understand something. One call to the financial aid office can help you better understand costs, the delivery methods of financial aid updates for future reference, and any possible financial needs that might not be covered in the initial award letter.

Since awards letters are offers of financial aid to students, you don’t have to accept anything you don’t want. So ask a lot of questions about the types of aid that are being offered. If you are still deciding between colleges and comparing financial aid offers, a good resource is the Consumer Financial Protection Bureau’s Compare Schools tool. The tool allows families to compare three schools at a time based on financial aid offers. While you should compare school costs, William recommends erring on the side of caution when communicating with different schools and disclosing your student’s award letter to ask for more money. He says that while most schools do not care about what another school is offering, if they do ask, you need to be able to show them. Also note that the amount of money awarded to students must be accepted by the student and guardian before the funds can be distributed. If a young person does not have a guardian to help them go over their letter, Williams recommends they talk with their high school counselor. “It’s important to review the award letter and talk to someone who is familiar with the process. Without that you won’t be able to identify errors, or details.”

Next, estimate the net price and cost of attendance

The cost of attendance is the total sticker price of the school, including room and board, meal plans, transportation, health coverage and a host of other fees.

The net price is the amount of money students and families are responsible for paying after financial assistance like scholarships and grants are subtracted from the overall cost. When going over the award letter and breaking down tuition costs, the Department of Education’s College Shopping Sheet is a resource that allows you to map out and break down the facts and figures from award letters for a better understanding of what is being offered and what you will need to pay.

Identify the types of aid you’ve been awarded

Take a look at the total financial aid awarded to the student. This is also referred to as your financial aid package.

In this package there are different sources of financial aid offered to students. Money offered in packages is intended to offset the costs of tuition, including the expected family contribution. Here are the possible types of aid you might receive and see listed on the letter:

  • Scholarships – Often, schools award institutional scholarships to students for their merit. This can be based on academic achievement or athletic abilities. Scholarship money does not have to be paid back. The total amount of the scholarship is typically divided and allocated to the student’s account for both semesters. Therefore, if your student receives an $11,000 scholarship, $5,500 will be applied to their account each semester. Any outside scholarships that you receive should be reported to the financial aid office so that it can be applied to your award letter and account. If your student receives a scholarship, make sure they ask about the terms of scholarship such as GPA requirements or speaking engagements so that they remain eligible. Note that not every scholarship awarded to students is reoccurring or renewable. That means that a student might have to apply to other scholarships to cover any unmet needs in the future. It is best to ask a financial aid counselor about the stipulations of the scholarship so that the student is aware of deadlines and knows what it takes to maintain it.
  • Grants – This money is awarded to students based on financial need and it does not have to be paid back. A common grant that students receive is the Federal Pell Grant. Pell Grants are awarded to undergraduate students with financial need and the maximum award is $5,815. One thing to note is that grants change frequently. While they might not change over the course of the year, one thing to look out for is “the front loading of grants.” Some schools offer many grants to first-year students, but those students as sophomores may not receive those grants again. Check with the school about their grants so that you know whether or not your student will receive the same amount in the years to come.
  • Loans ­– There are two types of loans made available to students and parents: federal and private. In both cases, the money that is borrowed has to be paid back with interest. Interest is a loan expense that borrowers pay lenders. The amount is calculated as a percentage of the unpaid amount of debt. Federal loans are issued by the Department of Education and tend to have lower interest rates. Private loans are issued by financial loan service providers, like a bank. They often have higher interest rates and require credit checks and co-signers. A co-signer is someone who shares legal responsibility with a student for repaying the loan. It is essential to know the seriousness of borrowing. When a student borrows money, they must sign a legally binding agreement, known as a promissory note, and they become responsible for repayment of the loan. If they do not make payments a year after graduating or arrange a repayment agreement with their lender, their loans will go into default. When a loan goes into default it means that the lender, whether it is a school or loan servicer, can decide to collect the money owed to them however they see fit. Defaulting on student loans can have serious financial consequences. In some cases, the borrower’s wages can be garnished, their credit score will be damaged, and the lender can take legal action against them.
  • Work-study – Work-Study is a federal student program that provides students with part-time employment while they’re enrolled in school to help pay for expenses. When students receive work-study as a part of their financial aid package it means that they are being given the opportunity to work for the assistance. Therefore if $2,700 is awarded to the student they must work the adequate amount of hours to receive that money. If the student doesn’t work, they will not receive the assistance. Students do not have to repay the money that they make.

Ask more questions

Before you and your student accept a financial aid offer, make sure that you get the answers to any questions you might have, whether it’s the terms of agreement for money that is being borrowed or the cost of the school over the course of four years.

Here are some questions you can ask financial aid counselors:

  1. How can I appeal for more financial assistance?
  2. Does the cost of attendance change annually?
  3. What are the requirements to qualify for in-state tuition?
  4. What are the conditions of the institutional scholarships?
  5. Will my financial aid package look different next year?
  6. What is the average debt students acquire while attending this school?
  7. Do you have information about outside scholarships?

Parent Toolkit resources were developed by NBC News Learn with the help of subject-matter experts, including Mark Kantrowitz, Publisher and VP of Strategy,; and Sharon Sevier, Advocacy Director, Missouri School Counselor Association