With several offers on the table, trying to figure out which financial aid package is best for your particular situation can be difficult, especially if this is your first year dealing with the financial aid process. To help you decipher your financial aid award letters, here’s a step-by-step guide to what to look for and what those numbers mean.
How Your Financial Aid Award Is Calculated
The information you provide on the Free Application for Federal Student Aid (FAFSA) each year is used to generate your Student Aid Report, which contains a dollar amount for your Expected Family Contribution. The EFC is the amount you’re expected to pay for college for one year.
The EFC calculation takes into account various factors, including your family’s income, assets, and whether you have any brothers or sisters in college. Schools use your EFC to determine your “financial need” — the difference between the cost of attendance and your EFC.
Some schools use an institutional EFC calculation in addition to, or instead of , your federal EFC, so your EFC and financial need can vary by school.
Your financial need will determine the types and amounts of aid you receive in your financial aid awards. Financial aid may include scholarships, grants, work-study awards, or student loans.
Analyzing Your Offers
Since there’s no such thing as a standardized award letter, with some award letters varying greatly from school to school, be careful to compare apples to apples when you’re crunching the numbers and weighing your offers.
When one school is awarding you tens of thousands in college loans that will eventually need to be paid back, with interest, and another school is giving you a smaller award that’s all in scholarships that won’t ever need to be repaid, what originally looked like the most money may not be the best offer for you and your financial situation.
Digging In: Going Beyond the Bottom Line
Many schools pledge to cover 100 percent of a student’s calculated financial need.
But look closely at the types of financial aid you’ve been awarded, and you may find that these schools are covering part or all of your financial need with student loans that you’ll need to repay.
There are two types of aid that may be included in a financial aid package: gift aid and self-help aid.
Gift aid is money that doesn’t have to be repaid, such as a Federal Pell Grants or institutional scholarships.
Self-help aid refers to financial aid that must be earned, such as work-study awards, or repaid, such as federal student loans.
The “Hidden” Costs of College
Your financial aid award letter may not include expenses like books, transportation, or day-to-day living costs. Make sure your budget for these expenses, if they’re not included in your financial aid award, to get a better idea of what your total college costs will be and how much added expense you may need to cover with additional student loans.
Prioritizing Your Aid Options to Minimize Debt
To help you minimize your student loan debt, prioritize your financial aid options to take advantage of gift aid first, low-cost federal college loans next, and private student loans last.
Private student loans may be able to provide the additional financial assistance you need if you’ve maxed out your scholarships, grants, and federal financial aid, but still have education-related expenses to pay.
Private student loans are credit-based student loans that can cover up to 100% of your education-related expenses. These college loans typically carry variable interest rates and may not offer the same deferment and forbearance benefits you get with federal college loans.
Since federal student loans typically offer more attractive terms than private student loans, you should take always advantage of your available federal financing options first.
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