How to Navigate Your Financial Aid Award Letters

Know the 4 key components of a good financial aid award letter so you can know whether or not a school is really a good financial fit for your family

Your family has made it nearly to the finish line of college admissions, perhaps a little frazzled and stressed, but you made it this far. Now, you are beyond hopeful that acceptance letters will reward all of your efforts.

That feeling of hope and delight from the college acceptance letters may be short-lived, though, as you next turn your attention to the financial aid award letters you receive.

What’s the problem with some financial aid award letters?

Financial aid award letters can be less than consumer-friendly. One reason for this is all schools create their own version, so there isn’t a standard for formatting or language. To recipients, these notifications can appear to be anywhere from just mildly confusing to painfully cryptic. Then, parents and students may not understand how much a school truly costs. Long-term, this may create some financial troubles for parents and students.

Many schools’ financial aid award letters surprisingly appear as more of a word jumble for you to solve. It doesn’t seem like they clearly spell out what financial help they are offering you and what remains for you to pay.

The valuable financial information you need, like knowing which monies you won’t have to repay and which monies you will have to repay, may appear labeled in industry jargon, acronyms, abbreviations, or perplexing shorthand. In the very simple example below, the use of the letters Lo, Loa, and L may stump the reader unnecessarily as the word loan could easily be spelled out. But what makes this example even more challenging to the reader is that there are three different loan abbreviations in the same award letter. Plus, a lack of space is not the problem.

If you’re receiving multiple letters containing a variety of acronyms and abbreviations, you’ll spend additional time just trying to figure those out.

Worse yet, some award notifications may be missing information altogether. They may leave off the full cost of attendance or not include the Expected Family Contribution. And to add in just a little extra irritation, sometimes dollar signs, commas, and decimal points may also be missing.

Why are financial aid award letters not better written for their intended audience of parents and students?

If one thing is clear, financial aid award letters are confusing. As New America put it, “Students and families confront a detrimental lack of information and transparency when making one of the biggest financial decisions of their lives: paying for college.”

At a minimum, it seems like the industry is out of touch with the needs of families, and their unfriendly way of communicating financial aid information highlights this. They’re not providing the tools to help families make sound financial decisions.

On the other end of the spectrum, it appears as if schools are being intentionally misleading or obscuring pertinent financial information, most likely to make you think they are more generous than they really are. Sometimes schools show a big financial aid award number at the top of the letter or even show $0 net costs at the bottom of a letter. However, they haven’t clearly identified gift aid from loans. This may lead some families to mistakenly believe their college costs are covered, even though that assumption isn’t correct. To avoid this trap, families will need to spend some extra time parsing through financial aid award letters to uncover the real value of their financial aid offer and discover the true costs for each school.

The 4 key components that should be included in your financial aid award letter

There are four primary components that should be included in your financial aid offer:

Total Cost of Attendance
Gift Aid
Expected Family Contribution
Loans and Work Study

With these four numbers, your family can gain greater insight into the affordability of each school. You can determine what the school expects you to pay, you can assess the generosity of the aid award, and you can quickly see if too much debt is already on the horizon. If any of these components are missing from your aid offer, please contact the school to obtain the information.

To help remember these components and track this information for each school, check out The College Financing Plan from the U.S. Department of Education.

There is an annotated version that highlights the various elements that should be included in your financial aid award letter, as seen in the example below. There is also a blank version that you can print out or save, and it also contains a short glossary of terms. Both versions can be found by visiting Office of Postsecondary Education College Financing Plan.

Another resource with a template for a good financial aid letter is the National Association of Student Financial Aid Administrators Student Aid Offer Model.

Identifying the expected cost for a school

The first step in understanding your aid award is to locate in the letter or calculate what the school will expect you to pay:

Cost of Attendance (-) Gift aid = $ amount due to the school

It’s important that the award letter capture all components of the school’s Cost of Attendance.

If any of the components are missing, the financial aid award will mistakenly appear more generous. Unfortunately, you’ll be left holding the bag when your bill comes due and it is higher than you expected.

Gift aid is any money that does not have to be repaid – such as grants, scholarships and tuition waivers. Gift aid may be need based or merit based.

Evaluating the generosity of your financial aid award

How generous is your financial aid award?

Based on your completion of the Free Application for Federal Student Aid and perhaps the CSS Profile required by some schools, an Expected Family Contribution (EFC) was generated.

The EFC is the amount schools think you can pay for one year of school, and it is also the number schools use to determine eligibility for need-based aid. (for more information on the EFC, checkout Understanding Your Expected Family Contribution.)

The Cost of Attendance (-) Expected Family Contribution = Demonstrated Need

Having the EFC on the financial aid award letter gives you some indication of how the school determined their financial aid offer for you. More importantly, you can better assess how generous or not so generous a school’s aid offer might be.

In this very simplified example, assume you receive an award letter with the following information:

The amount you will be expected to pay is $35,000:

However, without seeing the EFC as part of the award letter, you can’t really be sure how the school determined their gift aid number. And you also do not know if this is a good award for the family relative to your demonstrated need.

Let’s say the EFC is $20,000:

So, in this case, with family need calculated to be $40,000, receiving gift aid of $25,000 may not look as generous as before. With a high price tag for this school, a less than generous school aid offer, and a readily available loan, it’s possible that the family is already headed toward overpaying for college and taking on too much debt. And this is just for one year! This example would provide the family with a good reason to connect with the school’s Office of Financial Aid, to verify if the school utilized the correct EFC in their aid calculation, and to also try to obtain more aid.

While very few schools will meet 100% of your demonstrated need, knowing the EFC a school used is a helpful tool in gauging the generosity of your financial aid award. Some schools are more generous than others. Check out our library for a list of the most generous colleges.

Calculating the real cost of student loans

Your financial aid award letters may include several line items that refer to loans. The loan terminology and the formatting of the award letter may lead you to believe that your college costs are covered.

Please remember, loans do not lower the cost of college but add to your college costs in the form of interest charges and other potential charges.

As shown in the Department of Education’s College Financing Plan and the NASFAA Student Aid Offer Model, loan information should be shown in a separate section, not interspersed with the gift aid. And, although you may see terms like credit-based aid or self-help aid, all loans should be identified as loans.

Are student loans coming to your rescue or sinking your financial ship? Now is the time to get really clear on how student loan debt is showing up in your financial aid awards and what the long-term implications will be for that debt.

Before accepting any loans in an award offer, it is important to know the total amount of loans needed for all four years of college, as well as loan terms. This includes interest rates and potential repayment schedules. For a quick estimate of what your potential loan repayment amounts will be, visit finaid Loan Payment Calculator.

Just because loans are included in your aid offer does not mean you have to accept them. If a school is too reliant on loans in their aid offer, contact the school to determine if there are other options.

Lastly, also under the self-help aid category of your financial aid award, you may find the offer of Work Study. Before accepting it, determine if the work study stipend earned will be applied directly to the tuition bill or if it will be paid directly to the student, so you know what to expect as tuition payments come due.

Paying for college today is a real investment for families. Although a majority of students are getting some type of price break, college is still very expensive, and uninformed buyers will definitely pay more.

The financial aid award letter is at the center of helping you understand what a school expects you to pay. When these letters are opaque, disorganized, or incomplete, you could end up overpaying for college and taking on too much debt. It’s important to shine a light on your award letters. You need to understand the full cost of attendance, gift aid, the expected family contribution, and loans that may be available and their terms. This gives you the opportunity to make a more informed investment decision and better protect your financial future.