How to Compare College Financial Aid Letters
When strolling through the produce section in the grocery store, it’s easy to compare varieties of apples. In a perfect world, comparing financial aid offers from different colleges and universities would be a similar exercise. It’s not a perfect world.
A recent study by the Institute for College Access and Success determined that out of 150 university award letters it examined, only 10 met the institute’s criteria for basic understanding of a financial aid award by the consumer. That’s right. Far less than 10% of colleges speak plain English in their financial aid offer letters.
Tools for Comparing Financial Aid Awards
The simple reality is that too many universities intentionally make financial aid awards hard to decipher. They want to appear generous, but often they are not actually being generous.
When my youngest child received his financial packages from six universities, apples were never compared to apples. Instead, we felt like we were comparing apples to oranges to pears to kumquats.
Fortunately, there is a tool to help—the Federal College Financing Plan. It’s not perfect, but at least you’ll be comparing varieties of apples instead of every fruit in the produce section. Two other comparative tools parents should gain familiarity with are a government woksheet for parents to use the 2020-21 College Financing Plan Template (PDF)
Chances are missing facts will result in a few phone calls or emails to a college that when revealed will paint the offer in a somewhat different light. FinAid.org also has a tool to help make sense of an offer, but you’ll probably have to call each college or university to get information that isn’t included in its award letter.
Financial Aid Terms that Matter
Before you apply any of these tools, get familiar with some terms besides the family Free Application for Federal Student Aid (FAFSA):
- Student Aid Report.
- Expected Family Contribution (the all-important EFC).
- Perkins loan.
- Subsidized Stafford loan.
- PLUS loans.
- Work-study requirements.
- Co-branded private student loans.
You also need to know what to look for in your financial aid award letters:
- Interest rate.
- Repayment term.
- In-school deferments.
- A lengthy list of fees assorted colleges add on.
- Subsidized interest.
- Unsubsidized interest.
The single most important item to learn is the family—Expected Family Contribution (EFC)—individually generated from a federal formula based on the information supplied on the FAFSA form. But guess what? Many universities do not include the EFC on their financial aid offers. Since there is no standard format for award letters, universities may make them difficult to compare and contrast by leaving data out, masking key information or intentionally underestimating cost, most especially transportation and textbooks.
College Loans and Grants
Still, it’s one thing to be off by $500 on textbooks but quite another when it comes to loans, grants, and work-study offers. Perkins and Subsidized Stafford loans are low-cost programs from the federal government—straightforward but limited. Colleges have dozens of ways to disguise other types of financial aid incentives. It is easy not to recognize the appearance of a “need-based” loan awarded by the college when it can likely be a co-branded private student loan.
Another thing to remember is that if you were lucky enough to receive an outside scholarship from, say, the Rotary Club or a local nonprofit, you must tell the colleges.
It’s likely that amount would go directly into the dollar gap, being absorbed into the offering.
Next, look very closely at grants. Colleges may front-load these financial instruments to make them look more attractive to incoming freshmen, but be careful to see if the grant money balance shifts to favoring loans when the student enters upperclassman years.
Always ask if your student can expect similar grant money in Years 2, 3, 4 if the family financial circumstances don’t change.
Establish Your True College Cost
The bottom line, get your Student Aid Report and EFC before assessing the financial aid burden. Then determine the difference between the Cost of Attendance (COA) and the gift aid segments (grants, scholarships, discounts, and anything else you don’t have to pay back) in a financial aid package to establish your out-of-pocket cost—the true measure of how much year one is really going to cost.
An accountant well-versed in college financial aid is worth a few fee hours.
Written by Mike Ryan