Comparing Financial Aid Awards
With March comes acceptance letters. That means it's time to prepare to interpret financial aid award letters. And with the current level of upheaval in the Department of Education meaning a lot of potential unknowns in future years, it’s never been more important to make good financial decisions on college.
For most families, how much schools cost is part of the decision making process. But comparing award letters from different schools might seem like comparing apples to taco salad. The good news is, all offers need to show total cost of attendance, gift aid offered and any self-help aid– work-study and loans as applicable. Unfortunately, they have pretty broad latitude in how they do it. And really, there are two pieces to comparing college cost: what’s in the award letter and what’s in the school’s cost of attendance.
The award letter is the easy part, if you know what you’re looking for. Remember that your goal is to determine what your actual annual out of pocket expense will be at each school. The award letter will show–at the top– the total cost of attendance before any aid is subtracted. Typically this is separated into direct-billed costs— tuition, fees, on-campus room and board— and indirect costs such as books, personal expenses, and off-campus room and board.
Gift aid— scholarships and grants— usually comes next and can have multiple components including institutional, federal and state grant dollars if applicable. The award letter might also include “self-help” aid, including work-study or subsidized loans if the student is eligible; in addition, it may include an unsubsidized Direct Student Loan or a parent PLUS loan. Remember that loans and work-study are your money; they are simply being applied to your college costs. Then, the student’s net cost will be listed.
Your job in reviewing award letters is to remove the self-help aid– loans and work-study– to figure out your actual out-of-pocket cost. When doing this, double-check whether the aid amounts are listed annually or by academic term. (Shameless plug: my book, How to Pay for College, includes a downloadable worksheet breaking all of this down so that you can make more informed comparisons.)
This year in particular it’s crucial to understand the loan components of your financial aid package before accepting admission. While the Direct Student Loan is likely to continue to be available, families should not count on the parent PLUS loan continuing to be available in its current form and should factor that into college choice.
The hard part is figuring out what’s included in Cost of Attendance. This is tricky because there are two competing philosophies in cost of attendance, based on the rule that financial aid and borrowing cannot exceed total cost of attendance. One philosophy– typically used by schools that are generous in meeting financial need– is to include all costs a student might incur under cost of attendance. The other philosophy is rooted in the idea that by reducing the cost of college, schools might help students to minimize student loan debt. And then there’s everything in between. In order to make apples-to-apples comparisons, you need to find out a few things:
Do you have options with housing costs or meal plans? If so, check out your options rather than just assuming what’s in your award letter is what you want. My son applied to two schools; one used the highest priced dorm and meal plan in cost of attendance and the other used the lowest. It made it seem like one school cost $7,000 more annually than the other, when in fact the costs were pretty similar.
Can you opt out of any of the COA items? My daughter’s school includes the student health insurance plan in COA; it’s waived with proof of insurance. This makes her school almost $5,000 cheaper annually than the published COA.
Books and personal expenses often have little to do with what’s listed. Best bet? Ask the school to put your student in touch with a current student in the same major and just ask them, since your course selection ultimately determines your cost of books and supplies. My daughter’s school quotes $3,000 annually for books; my son’s says $800. Neither of those is correct, though for some majors they could be close.
If any school is not local, figure out what your annual travel budget looks like. Your student will travel to campus in the fall, may come home at Thanksgiving, will make a roundtrip for winter break and likely spring break, and then come home at the end of the year. Your budget should also include a family visit to campus if that’s something you’d do.
A good way to get a handle on these hidden costs– and many many more topics– is to join the Facebook parents’ page for each school your student is accepted to. These groups can be an excellent resource for insider information about a school.
Another key point in reviewing your award letters is, how do scholarships or grants renew? Aid offered on the basis of need— which is usually, but not always, referred to as grants in award letters— is recalculated annually based on that year’s FAFSA and CSS Profile if applicable. Families whose incomes vary from year to year should be aware of that and do the colleges’ net price calculators at different income levels to see how awards might change from year to year. Merit scholarships typically have minimum GPAs or other criteria; the award letter should have the details. And students need to maintain full time status to keep their awards.
Want some help comparing your financial aid awards? My book, How to Pay for College, includes a downloadable worksheet that lets you make apples-to-apples comparisons between colleges’ award letters.
