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Understanding Your Financial Aid Award


Hooray! You’ve been accepted to your school of choice and have been awarded a financial aid package. This is certainly an exciting time, but once you open the financial aid award and begin reading, your excitement turns to confusion and frustration.

Welcome to the annual interpreting of your financial aid award. While there are some guidelines for schools to follow when creating financial aid awards, for whatever reason, there aren’t any strict standards on formatting. This often leaves many schools using unfamiliar formats and terminology.

Unfamiliar language and cryptic codes can be found throughout many financial aid awards. Loans and grants can be lumped together. Codes such as “L” or “LN” are sometimes the only indication that an amount is actually a loan. In fact, most financial aid students receive come in the form of student loans.

Additionally, the true cost of attending the school is often underestimated on award letters. This can leave students constantly coming up short on funds to pay for school. In this article, you’ll learn how to understand your financial aid award.

Understanding the terms used to describe the cost of college can help you better interpret your award letter and ask questions when something doesn’t seem to make sense.

Starting with “net cost,” this is the difference between the cost of attendance (all college costs) and the total financial aid award. For example:

Cost of Attendance

  • $45,000: Tuition & Fees
  • $15,000: Room & Board
  • $2,000: Books & Supplies
  • $1,000: Transportation
  • $3,500: Miscellaneous

$66,500: Total

Financial Aid Package

  • $6,000: Fed Pell Grant
  • $2,500: Federal Perkins L.
  • $13,000: Parent Plus L.
  • $8,000: Fed Unsub Staf

$29,500: Total

$37,000: Expected Net Cost

From the above, net cost subtracts out all forms of financial aid, of which there are two:

  • Gift aid: Scholarships and grants (money that doesn’t have to be repaid)
  • Self-help aid: Loans and student work studies (money that must be repaid)

The formula for “net cost” is: Net cost = cost of attendance − (full) financial aid.

Net price subtracts out only gift aid. Using the above example, it will look like this:

Cost of Attendance

  • $45,000: Tuition & Fees
  • $15,000: Room & Board
  • $2,000: Books & Supplies
  • $1,000: Transportation
  • $3,500: Miscellaneous

$66,500: Total

Gift Aid

$6,000: Total

$60,500: Expected Net Price

The formula for “net price” is: Net price = cost of attendance − gift aid.

What do the differences between net cost and net price mean? Net cost can give the impression that financial aid is covering more cost than in net price. This is misleading. The student will still have to pay back any loans or participate in work-study programs that are included in net cost.

Net price can be thought of as the discount sticker price on college cost. This is the number that you will need to somehow pay for.

Depending on the award letter, net cost or net price will be used. Don’t let either throw you off. Now you know what is involved in arriving at both numbers.

“Expected family contribution (EFC)” is another number that might be buried in your award letter. That can be included in the net cost number since it is money that the student must come up with.

No matter what your award letter looks like, it is not likely to show the true cost of college. In the examples above, the cost of attendance has several line items included. Don’t be surprised if your school only lists tuition and fees. This can leave out $20K in cost once other expenses are added back in.

If the school is calculating net price based on only two line items for the cost of attendance, this will be grossly underestimated. Many students are caught off guard by this fact and only realize it once they are a few months into their education.

This creates a situation where a student is scrambling to find some way to finance various costs associated with their education. In the worst case, some students simply give up and leave school.

Be aware that some colleges offer higher gift aid during the first year and much less after that. This is a practice referred to as “front-loading.” Check with the financial aid office for more information if this is something the school does. You might not get a straight answer. In that case, the U.S. Department of Education’s College Navigator can be of some help. Either way, do your best to get an answer so that you can plan properly.

If you are receiving private scholarships, they can have a negative impact on your needs-based financial aid. Depending on the school, either your gift aid or self-help aid may be reduced. Again, you’ll want to check with the school on what impact any private scholarships may have on your financial aid.

Financial aid award letters can be confusing and misleading. Knowing how to read between the lines and understand their various nuances is critical to making your college experience a success. Hopefully, this article has armed you with the insight needed to more accurately interpret your award letter.

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