How to read your financial aid award letter

You must first fill out the Free Application for Federal Student Aid, also known as the FAFSA, to receive financial aid. When you submit the form, you’ll list colleges that you’re interested in — those that offer you admission will use the information on your FAFSA to create your award package.

Your financial aid award letter is typically sent out along with your college acceptance. It details the aid you’re eligible for, whether it’s scholarships, school grants, work-study, student loans or a combination of these. Financial aid letters may also describe the total cost of attendance for the year at the school sending the letter, including tuition, fees and room and board.

How to read your financial aid award letter

Before reading your financial aid award letter, familiarize yourself with these terms to better understand your unmet financial need and what the college is offering to help you afford the cost of attendance.

• Expected family contribution (EFC): Your EFC estimates your family’s financial resources based on income, family size, assets and more. The U.S. Department of Education will calculate your EFC using your FAFSA and will use that number to determine how much need-based aid you’re eligible for.
• Estimated cost of attendance (COA): The estimated COA is what the university estimates that you’ll spend over one academic year in tuition, fees, room and board, books and supplies. This may be listed as your “direct cost.”
• Gift aid: Gift aid is financial aid you won’t be responsible for paying back. This includes grants and scholarships. Work-study programs are sometimes included, but they’re often also called self-help aid because they require you to work.
• Student loans: Student loans are financial aid you’re responsible for paying back in a certain amount of time. Your letter will list the maximum amount you can borrow and what your student loan interest rate will be if you do.
• Outstanding balance: The remaining balance is the cost per academic year after all of the financial aid is accounted for. This may be listed as your “net cost.”

How financial need is determined

Your financial need is determined by subtracting your expected family contribution from the total cost of attendance of the school, which schools are required by law to disclose. After the Department of Education determines your EFC, the school will use that to calculate your level of financial need.

Your financial need will differ at each school since schools have different COAs. Let’s say your expected family contribution is $30,000. If School A has a COA of $40,000 and School B has a COA of $55,000, your financial need would look like this:

• School A: $40,000 (COA) – $30,000 (EFC) = $10,000 (financial need)
• School B: $55,000 (COA) – $30,000 (EFC) = $25,000 (financial need)

Even if you have more financial need at one school, you won’t necessarily be offered enough financial aid to cover that amount. Available need-based aid varies by school, so you could be offered a certain amount at one school and a different amount at another.

How to compare financial aid packages

Every school calculates your financial aid differently. Here’s what you need to look at to get an idea of what each package is offering.

Loan details

If you’re planning on taking out student loans, look at how much you’re able to borrow and what the long-term cost will be. Your award letter will tell you the maximum amount you can borrow for the academic year, the interest rate and loan fees, the grace period, the repayment terms and more.

You’ll also be able to see whether you qualify for subsidized loans, which is where the federal government pays your interest while you’re in school and during your six-month grace period after graduation and future deferment periods.

Gift aid details

If you’re eligible for scholarships and grants, you’ll want to know how long these gifts will last. You’ll also need to know if they renew automatically each year or if you’ll need to reapply, and whether you need to meet any responsibilities to keep the gift aid.

Knowing which school offers the largest amount of gift aid is particularly important because you generally don’t have to repay scholarships and grants. When you look at your remaining balance after all financial aid has been disbursed, which one has the lowest balance, and can you afford to pay that balance annually over four years?

Work-study availability

Eligibility for work-study programs doesn’t necessarily mean you’re guaranteed to find a job on campus. But if it’s in your award letter, you’ll want to know how many hours you’ll need to work every week and what you’ll earn.

Consider these numbers alongside your list of courses and determine whether working the amount required is feasible.

How to accept a financial aid award

Once you’ve carefully compared all of the details and have decided which school you’re going to attend, you need to accept your aid offer. The details for how to accept your package, as well as acceptance deadlines, will typically be on the letter. Call your school’s financial aid office as soon as possible for more information and guidance if no deadline is listed.

You don’t have to accept all of the aid listed. While there’s no downside to accepting scholarships or grants, think carefully before accepting student loans or committing to work-study. Private organizations also offer scholarships and grants, and applying to those can further reduce costs.

If you do choose to take out federal student loans, remember that you can request a lower amount than what’s listed on your financial aid award letter. It’s best to borrow the minimum amount that you truly need.

What to do when financial aid isn’t enough

There are additional ways to pay for school beyond gift aid, like scholarships and grants, and federal aid — most commonly private student loans. That said, you should always maximize all other options before turning to private loans.

Private student loans don’t have the same protections or benefit programs, like student loan forgiveness, as federal student loans, making them a poor choice for funding the majority of your schooling. Though they don’t offer the same perks, you may be able to get a low student loan rate with a co-signer — in some cases even lower than federal loans.

Bottom line

Financial aid award letters are a key part of your college review process, providing information about how much support a school may be willing to provide and what the total cost of attendance will be. Understanding how to read these letters and the terminology used in them is important to be able to accurately compare award offers from different schools.

Once you’ve settled on the school you want to attend, you’ll need to accept the aid package or the portion of it you need, if you want to receive it. If you have any questions about your proposed award package or need clarification, be sure to reach out to the financial aid office before moving forward.