Interpreting Financial Aid Award Packages

Interpreting an award letter can take some time. Here’s a sample that can help you understand and compare award letters you receive.

If you have questions, be sure you contact your college’s financial aid office to get them answered before the award acceptance deadline.  Don’t lose an award because you missed the deadline! 

In the sample above, the college is offering to cover more than half the student’s demonstrated financial need with a $7,500 grant.  That’s enticing.  But some colleges make large initial grants to encourage students to enroll, then reduce or remove grants after the first year.  So it’s important to ask the college’s financial aid staff whether you can expect this level of grant assistance to continue in future years.

Similarly, you should also ask about the continued availability of state grants.

If you’re told your grant funding level is expected to be stable while you’re in school, you can easily estimate what your total loan indebtedness would be after four years.

The student in this case would owe around $12,000 after four years if his/her college costs remain the same. That's about the national average for college graduates.

Students who are offered Federal Work-Study opportunities should consider this amount and whether they are willing to work part-time (on- or off-campus) to earn these funds.

Comparing Award Packages

If you receive more than one financial aid award package, you’ll want to compare them. This section provides some pointers for doing that.

Here are some points to consider.

• Grant-to-Loan Ratio
  In general, packages with a high proportion of grant aid to loan aid are more appealing because the student will have less to pay while in college and less debt to repay after graduating.  Grant-to-loan ratio can also be an indication of how much a college wants a student to attend.  Colleges tend to award higher proportions of grant aid to their most desirable prospects.

• Self-Help to Grant Ratio
  Take a look at the big picture, beyond grants versus loans.  The self-help to grant ratio indicates what portion of the total cost of attendance you are expected to cover through loans, family contributions and work-study employment.  Be realistic about whether the student can meet any in-school earnings expectations.
• Loan Terms
  Compare the types of loans you’ll be expected to take on.  Are the loan interest and repayment terms favorable?  For students who qualify, subsidized loans are preferable because they have low interest rates and no repayment until after college.  Private and/or unsubsidized loans generally have less attractive terms and are considered less desirable.
• “Gapping”
  Sometimes colleges award aid packages that don’t fully cover the spread between total Cost of Attendance (COA) and the student’s Expected Family Contribution (EFC).  This is called “gapping.”  If you are “gapped,” you must decide if you want to come up with the additional money you’ll need to attend that school.
• Future Aid Packages
  Students should always ask if all or part of their financial aid award is renewable if family circumstances stay the same (or worsen).  Be very wary of aid packages that seem too good to be true – because often their terms aren’t as favorable in subsequent years.

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