Your Guide to Decoding Financial Aid Letters and Choosing a College You Can Afford

Subsidized Loans. Unsubsidized Loans. PLUS Loans. Pell Grants. Federal Work Study. Scholarships. Not to mention Expected Family Contribution and Cost of Attendance. Welcome to the alphabet soup of financial aid award letters.

Now that most high school seniors have received their college acceptance letters, they face the daunting task of deciphering financial aid jargon and comparing award packages. But not all colleges use the same terminology or format to present the information, making it difficult for families to understand or compare prices of different colleges.

“There is a lack of standardization for financial aid offers,” says Brendan Williams, senior director of knowledge at the non-profit organization uAspire. “And even sometimes terms mean different things from one financial aid offer to the next.”

Williams contributed to Decoding the Cost of College, a 2018 report from think tank New America and uAspire that looked at award letters from more than 500 institutions. The researchers found that out of 455 colleges that offered an unsubsidized student loan, there were 136 unique terms for that loan, including 24 that did not include the word “loan.” The same study reported that 70% of letters grouped different types of aid, like loans and scholarships, together and only 40% calculated what students would need to pay after all the financial aid was factored in.

Williams said that some financial aid offers don’t even include the total cost of attendance — the amount students will pay to cover tuition and fees, living expenses (on- or off-campus), books, supplies, transportation and other miscellaneous expenses for an academic year.

“You have to sort of go digging for it,” he says. “And ultimately, what truly matters is the calculation of how much you have to pay.”

Here’s what to look for when you go digging:

Understand the terminology

Looking out for keywords can help, says Eddy Conroy, a former financial aid officer and associate director of institutional transformation at Temple University’s Hope Center for College, Community and Justice. For example, “anything that has ‘direct,’ ‘Stafford’, ‘Subsidized’, ‘unsubsidized’ or ‘parent plus’ in its name is usually a federal loan.”

Independent counselor Lindsay Fried says that students should understand expected family contribution, or EFC, which is the amount that a family is expected to pay for their student's college education. But Fried says that the EFC can vary between colleges depending on whether a college only uses the Free Application for Federal Student Aid (FAFSA) or if they also require the CSS profile, another form that more than 200 colleges use to award their own financial aid dollars.

“If it requires the FAFSA and the CSS Profile, sometimes you're going to have a different EFC,” Fried says. “So it’s important to know the difference and why some numbers are going to be different depending on the school.”

There are also free online resources that families can use if they are unsure about what something means. uAspire, which works to help students find affordable colleges, has a financial aid dictionary, and Federal Student Aid has a searchable glossary. Financial aid officers are also always happy to answer questions, Williams says, so don’t be afraid to reach out to a college for clarification.

Compare apples to apples

It can be difficult to directly compare financial aid awards to see what you’d pay at each of the colleges where you’re accepted, because the information isn’t always presented in the same way. For instance, different costs of attendance can make some financial aid offers sound better than they actually are.

Williams and Fried both suggest that students and families should find a way to make the information comparable in a similar format.

“Take a step back and look at the numbers away from the financial aid offer and away from how the college is presenting them to really make sure you're doing an apples to apples comparison,” Williams says.

Fried encourages the students she works with to make a spreadsheet that differentiates different kinds of aid: loans, scholarships and grants.

“Splitting it up that way really helps you understand what you're getting yourself into compared to the other colleges that you were admitted to,” Fried says.

Sometimes colleges also include work study, the federal program that funds part-time jobs for students with financial need, in the total aid package. But it’s a type of aid that is dependent on a student finding a job and working. It might help cover some of a student’s personal expenses, but “work study isn't technically guaranteed,” Fried says.

Williams points students to uAspire’s College Cost Calculator, which has students input information from different award offers and presents the information in the same format. It also calculates the amount students will pay with and without loans. (More info on how to use the tool can be found here).

Differentiate between direct and indirect costs

One area of confusion is often direct vs. indirect costs, the experts say. Direct costs are fixed expenses like tuition, fees, and room and board for on-campus living. Indirect costs are more variable, and include things like transportation, books and miscellaneous personal expenses. Colleges include estimates for books in their cost of attendance calculations, but the actual cost can range widely depending on a student’s major. Transportation costs can also differ depending on whether a student is local or lives across the country. Off-campus living costs can vary significantly, too.

Fried says she starts with a conversation about direct costs because those are easier to calculate. Then she works with students to create a reasonable budget for indirect costs and how much students can expect to spend each month based on their individual plans for housing and transportation. She recommends using this calculator from MyFico to help build your own budget.

A student’s choice of on-campus housing is another variable that can change how much a student actually pays, Williams says. The figures presented in the cost of attendance are often an average of room and board costs, which can vary depending on whether a student has a single or double room and what meal plan they choose.

Conroy adds that most cost of attendance estimates are based on the assumption that students are recent high school graduates who go directly to college, when in reality many students are older and have different living situations.

“The cost of attendance is also almost always built on the assumption that students will share a room with someone,” he says. “I always advise students to try and figure out what their actual costs will look like so that they can compare.”

Look at the multiyear cost of college

Williams also encourages students to consider how much college will cost over all four — or more — years. Some colleges will be clear if a scholarship is only for one year, or what eligibility criteria students need to meet to continue receiving it. Sometimes more details will be available in a student’s online portal, but reach out to your financial aid office if you have any questions about whether you’ll receive a scholarship each year, Williams says. And keep in mind that costs are likely to go up every year.

“I've seen so many families who make the decision based off of one year,” Williams says. “But then the next year, they're unable to make that work because they weren't looking at the multi year proposition of college costs.”

If students are considering taking out loans, Williams suggests that students look at a loan calculator, such as the one at studentaid.gov, to be aware of the long-term costs of borrowing.

It’s worth spending the time to understand exactly what you are expected to pay over the entire span of your education.

“You would never go buy a house or a car without knowing the price,” William says. “And college at times can cost as much or even more than both those items. So don't make your college decision without knowing the cost of that decision.”

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