April 1, 2013

Decoding Financial Aid Award Letters

Apr. 1, 2013 at 07:29 AM | By Rod Oto | Comment Count

From deciding where to apply to taking those first steps onto campus to receiving a degree, join Hobsons over the next few months as we follow students, counselors, and their families on the path from college choice to completion. See more in the series.

Rod Oto is the associate dean of Admissions and director of Student Financial Services at Carleton College.

Students and their families can put what seems like a lifetime of energy and focus into perfecting the college admissions process only to get accepted and have to then determine how to make it through the next step, financing their education.

Financial aid award letters are notorious for confusing formats, terminology, and a perplexing lack of transparency. When students and their families receive award letters (here's a sample) they are often overwhelmed and befuddled by what’s in front of them. But it doesn’t have to be this way. I’m here to tell you there is a better way to deal with this financial aid madness; a method in which clarity and discussion are commodities that can make sense of the financial piece of selecting a college.

Step #1: Set some time aside.

College is an important investment and, as with buying a house or saving for retirement, time and proper research are required. This isn’t to say that decoding your student’s award letter will be a piece of cake. In fact, I don’t like to use the word easy when talking about financial aid at all. Students and their families should approach the financial aid process with the understanding that a considerable amount of time, discussion, and planning is necessary to come to a decision about what is the best way to pay for expenses – this includes direct and indirect costs, but we’ll get to this later.

Step #2: Gather the data.

Having difficulty understanding what’s in front of you? Gathering all the proper paperwork and documentation will make this process a little more manageable. This means students, mom and dad, and whoever else will need to have information about direct and indirect costs, grants and scholarships, loans, and student employment in front of them. If you’re having trouble deciphering costs, contact the institution’s website or financial aid office for help. Most financial aid offices have general estimates.

Direct Costs: What the college or university will bill you including tuition, room, board, and required fees.
Indirect Costs: Necessary expenses related to attendance. Think of books, supplies, transportation, personal expenses, and optional fees.
Gift Aid: Grants and scholarships do not have to be paid back. For instance: Pell Grant, SEOG, State Grants, institution grants and scholarships, merit scholarships, etc. Basically, anything that has grant or scholarship in its title.
Student Loans: To be paid back to the Federal Government, bank, or institution: Stafford Loan, Perkins Loan, Direct Loan, and private loan.
Work/Student Employment: Earnings you will make while working. Also note how many hours per week you will need to work which might have an impact on your academic performance.

If students still need more help, particularly with indirect costs, they may need to have a serious discussion about financial planning and other ways to pay for their education. This could lead to applying for more scholarships, appealing for more aid or payment options, exploring student employment opportunities, or financing via student loans.

*Most financial aid offices are open to reconsidering financial aid awards if the student and/or their family can produce documentation for why this is necessary. This is not an end all solution to making college more affordable but it can provide another option for students and their families struggling to make college a possibility.

Questions to Consider About Personal Expenses:

Will I need additional clothes if moving to a new climate?
How many times will I come home from college? Transportation?
Does the college meal plan provide meals every day?
Do I need a new computer or mobile phone plan?
How much can we afford each month for personal spending?

Step #3: Calculating the balance.

Determine total costs for the school year with this simple formula:

Direct Costs – Gift Aid = what the institution will bill you.

Is this affordable and realistic?
If not, how much of it can you pay?
How much in student loans are you willing to take to cover the remaining balance?
Do you have a credit (or negative) balance that can be used for indirect expenses?

After students and families cover the total balance for the institution, how will indirect expenses be paid for?

Will parents/guardians help pay for these?
Will you need to take more loans?
Can work earnings cover these?

Step #4: Compare.

Create a chart or download the one below to compare each of the following for each college or university you are considering. This will contribute to the final decision about where to enroll by comparing costs of multiple schools accepted. (Learn what college bound Seniors should do ASAP once accepted) Make sure you’re comparing “apples-to-apples.” Too often people look at just the total awarded and compare those figures. Since not all types of financial aid are the same, be careful to make good comparisons. Here are some of the items to keep in mind:

Direct Costs
Indirect Costs
Gift Aid
What you will owe the school
Loans you may need to take out
Hours you may need to work while taking classes
Additional fees not covered by direct cost

Download SAMPLE FINANCIAL AID AWARD LETTER & WORKSHEET (w/ calculations)

Download FINANCIAL AID AWARD LETTER WORKSHEET (w/out calculations)