April is National Financial Capability Month and understanding the terms of your financial aid offer and making smart decisions about paying for college can be a good indicator of your financial capability.
Many schools use the term “award letter” which can be misleading and make it sound like all the aid that is listed will all be awarded to you. This notification (paper or electronic) is an offer, which means that you are not obligated to take all the aid you are eligible for and you should review the offer and know what you are agreeing to.
Financial aid packages can be confusing partly because each college uses their own forms and terminology. Understanding how to interpret a school’s financial aid offer letter is a pivotal financial decision-making moment that can impact your financial situation for years to come.
Be sure that you are able to answer the questions below before you make any decisions on how to pay for college:
What is the total cost?
Total estimated cost which includes both direct and indirect expenses, which may also be referred to as Cost of Attendance (COA). Direct costs like tuition and housing and a meal plan, if you plan to live on-campus, will need to be paid directly to the school. Other estimated personal and educational expenses such as books, transportation, possible child care, and other living expenses are your responsibility and are sometimes referred to as indirect costs.
How much free money has been awarded?
Grants and scholarships are financial aid funds that do not have to be repaid and may be considered an award. These funds can be need-based or be based on performance or affiliation. Each grant and scholarship may have specific requirements to maintain eligibility.
What will you actually have to pay?
This is sometimes referred to as net cost or out-of-pocket cost. This is the remaining amount after grants and scholarships are subtracted from the total cost. This includes any loans, money paid directly to the college, and additional personal and educational expenses paid throughout the year. Pay attention to how schools show loans in the offer. It may appear they are reducing what you will have to pay, but keep in mind that they will have to be paid back later.
Is work-study an award?
Work-study is a federal program that schools administer to provide students part-time jobs. It is not a guarantee. You will need to find an eligible job and work in order to earn the money. The full amount is not awarded up front so work-study compensation won’t help to pay expenses that may be due at the beginning of an academic period.
Is the best financial aid offer the one that says $0 dollars owed?
Financial aid offers will likely include loans of varying types. Loans are borrowed money that must be paid back, with interest. Take a look at Federal Student Aid’s Financial Awareness Counseling Tool for more details about budgeting, borrowing, and repayment. Some loans, like Parent PLUS need to start to be repaid immediately.
Taking the time to understand your financial aid offer can have long-lasting benefits as you pursue higher education. Student loans are a vital source of financing for students and if managed appropriately, can be a worthwhile investment. If you are still unclear about the terms of your financial aid offer, its recommended that you reach out to the school and ask for clarification.