The Ins and Outs of Your Financial Aid Award Letter
College financial aid award letters are now being mailed out to countless college-bound students and decisions for college enrollment must be made before the May 1st deadline. Many students will have multiple offers, and families will need to decide which award offer is best. A lot of time can go into decoding the financial aid award so make sure you understand the terminology.
Financial aid letters can be very confusing to families, and many colleges are borderline deceptive in the current ways they use PLUS loans. This is the time when working with a specialist is worth its weight in gold; after all, the less the student borrows, the less student loan debt they’ll have to repay after college.
Here are a few strategic deceptions by colleges when issuing award letters to families:
The Total Cost Of College
Award letters can seem very generous if all costs are not listed. Many award letters only show basic costs, such as tuition, room and board, and books and supplies, but tuition can vary depending on the availability of classes and there are always fees attached to tuition costs.
Room and board can also vary depending on the meal plans chosen; many students will purchase snacks during the day or Starbucks to get started in the morning, so the full-blown meal plan may not be necessary for everyone.
Books and supplies can also be understated: a $2,000 budget for books and supplies can dissipate quickly when many textbooks cost $200 or more. Supplies can eat up the entire $2,000 budget alone for engineering, art, and computer science majors. There are also travel costs and personal expenses that are rarely covered in the financial award letter, but can add up to $3,000 per year or more.
If the entire cost of attending that particular college is not represented, the financial aid award letter can look pretty good. Here’s a little-known way you can get the bottom-line total cost of attending a particular college: simply call the college’s Financial Aid Office and state that you would like to know the total amount of Stafford and PLUS loans that you can borrow for the entire year of college. That dollar amount will be “true” total cost of that college.
The Missing Expected Family Contribution (EFC)
The EFC is the dollar amount the family is expected to contribute that year before any financial award is given by the college. The EFC is based on the results of the family completing the FAFSA (Free Application for Federal Student Aid) or the CSS PROFILE.
Yet, every college that uses the CSS PROFILE can create its own EFC because there are many additional questions they can add in Section Q which can raise the EFC dramatically. In addition, the EFC may not even be shown on the family’s financial aid award letter; in these cases, call the college and ask for your EFC number so you may determine whether the college is meeting 100% of your family’s “financial need” and compare their award with other colleges.
Colleges often award the student grants or scholarships in the first year, only to remove them in subsequent years. The only way you can be prepared is by asking the financial aid administrator of each school what is required to renew each grant and scholarship in subsequent years. This is a must-do! To have a grant or scholarship removed completely by the college after the first year can put your family in financial jeopardy.
PLUS Loan Maneuvering
Some financial aid awards may add loans together with grants and scholarships, or in some cases not even use the word “loan” to describe the award given. You may see award letters with grants and scholarships, the student’s Stafford loan, and the big Parent PLUS loan at the bottom, but guess what? The total amount of that award just happens to equal the entire cost of attendance on the award letter.
I’ve worked with families who believed that their entire cost of college was covered by the college and did not understand their loan options. At a 4.264% origination fee and 7.0% interest, that would be a huge mistake; a college loan for 11.264% is NOT a good deal!
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