Close X

Schedule a Consultation

    Name (required)

    Email (required)

    Phone (required)

    High school

    Student graduation year

    How can we help you?

    College Planning Blog

    Deciphering Financial Aid Award Letters

    by Kevin Krebs on March 14, 2018 in College Admissions Counseling

    One of the most important undertakings this time of year at Partners For Achievement is helping families get a handle on all the financial aid award letters they’re receiving from colleges. Since each school lays out its letter differently, families often have difficulty figuring out what’s what.

     

    The first order of business is to determine the full cost of attendance, which we interpret as the direct and indirect costs. The direct cost is tuition and room and board, while the indirect cost is comprised of things like transportation (all of which add up).

     

    Once you’ve totaled your direct and indirect costs, you need to decipher the two types of financial aid in your award letter. The first is called gift aid, and that’s the kind we like because it’s free money.

     

    There are two kinds of gift aid:

    • Grants (based on your financial need as determined by FAFSA or CSS Profile)
    • Merit scholarships (the result of your grades and SAT or ACT scores)

    Both grants and merit scholarships can vary tremendously from school to school.

     

    Both grants and merit scholarships can vary tremendously from school to school.

     

    The second type of financial aid, self-help aid, comes in the form of work study and student loans, usually federally provided Stafford loans and Parent Direct PLUS loans that can cover up to the full cost of attendance. This is not free money. I call it “aid with a catch.” Work study is based on the federal government giving the college money to pay kids to have jobs on campus. For most students, this amounts to $1,000 to $3,000 per year, and it is delivered as paychecks rather than a tuition break. It provides discretionary income for kids, but it doesn’t move the needle much.

     

    At PFA, we typically draw the line at your net cost after gift aid. We want all of our families to understand exactly what they are going to pay for each of their schools.

     

    In other words, if a school costs $60,000 per year and you’ve garnered $25,000 in gift aid (grants and scholarships combined) and $35,000 in self-help aid, you’re actually on the hook for $35,000. The fact that universities call student loans “financial aid” is one of the most deceptive things in higher education. That phrasing is really misleading for many families.

     

    The fact that universities call student loans “financial aid” is one of the most deceptive things in higher education. That phrasing is really misleading for many families.

     

    Consider this real life scenario:

    The mother of a PFA student called me last year and said, “Hi, Kevin, we got our financial aid letter.”

    “How much money did you receive?” I asked.

    “Total aid of $30,500,” she responded.

    She was very excited, but I knew this school wasn’t known for giving gift aid, so I asked her to read me the letter.

    “We have a $5,000 grant,” she said.

    “Great,” I answered. “That’s free money.”

    She continued, “We got $5,500 in Stafford loans and $20,000 in Parent Direct PLUS loans.”

    “Well,” I said, “they only gave you $5,000.”

    “What do you mean?” she asked.

    “The rest of it is student loans,” I answered. “You have to pay it all back with interest.”

    She said, “Then why does the award letter say, ‘Total aid received: $30,500’? That’s not right.”

    “That’s the game,” I said.

    Needless to say, the family was confused and disappointed.

     

    Financial Aid Award Analyzer

    We have a tool at PFA called the Financial Aid Award Analyzer. It’s a terrific spreadsheet in which we plug in the college numbers and the family’s budget, and it spells out everything, including the interest rate on the loans. I always say, “Excel doesn’t lie,” and this tool shows you whether a school is within your target budget.

     

    For many families, the financial aid aspect of the college decision process is overwhelming and intimidating. We try to bring a little clarity and objectivity to that process.

     

    Part of the PFA High School Program includes guidance on how much it will cost to attend college. For more information about PFA’s High School Program click here.

     

    Kevin Krebs is the founder and CEO of Partners For Achievement. Read more about Krebs and the rest of the Partners For Achievement team.


     

     


     

    Simple Share Buttons