Paying for college can be one of the most complicated financial decisions you have to make. The average cost keeps going up and affordability is one of the biggest factors in picking a school. For the 2019-20 school year , the average tuition and fees at a public in-state college was $10,116 and for private schools, it was a whopping $36,801.
Many students rely on a financial aid package for college in order to make those tuition payments. But sometimes students don’t get enough financial aid and sometimes it can be difficult to even know exactly what you’re being offered. There are acronyms and jargon and lots of different numbers.
This guide to college financial aid packages could help you as you navigate your offers so you can better understand your options.
The Steps to Getting a Financial Aid Package
In order to get any financial aid package for college, the first step is generally to fill out a Free Application for Federal Student Aid , commonly known as FAFSA®. The FAFSA for the 2020-21 school year became available on October 1, 2019 and the federal deadline to apply is June 30, 2020. Some states and colleges have separate deadlines for the FAFSA to determine aid. It can be worth double checking to confirm the deadline required by your state or school.
Filling out the FAFSA requires some basic financial and income information. If you’re a dependent student, then you’ll need your parents’ financial info as well. For higher income families or those in unique financial situations, this can be a little tricky.
All federal loans, both subsidized and unsubsidized, require a FAFSA in order to determine eligibility. And most colleges may also use the FAFSA to determine their own financial aid awards and packages, based on things like expected family contribution and financial need.
After you fill out the FAFSA, the Office of Federal Student Aid at the U.S. Department of Education will process your FAFSA and send you a Student Aid Report (SAR), which is essentially a summary of your information. It’s usually worth reviewing this information in detail to confirm that all of the information is accurate. If you find a mistake after reviewing your SAR, you’ll likely need to update or correct your FAFSA .
The SAR will include the calculated Expected Family Contribution (EFC), which is how much you and/or your family can be expected to contribute personally towards your education.
Then, colleges use this information to determine eligibility for university, local, state, and federal financial aid. Sometimes schools also ask for additional information, particularly if you are applying for school-specific scholarships.
The schools will then assemble a financial aid package that could be made up of grants, loans, work-study, and other waivers, and send you an “award letter.” Reviewing your award letter carefully can help you choose the financial aid mix that is right for you. Often these financial aid award letters come shortly after admissions decisions. Students typically have a deadline (often May 1, which is National College Decision Day) to make their decisions by.
That’s when it’s important to understand and compare the financial aid packages you’ve gotten from different colleges—even if that can be a little confusing. The key is to break down the jargon in order to help make an informed decision.
Understanding What’s in the Average Financial Aid Package
One study found that out of 455 college financial aid award letters there were 136 unique terms used for the same type of unsubsidized loan—some of which didn’t even include the word “loan.”
A majority of the financial aid package letters also didn’t clearly differentiate between types of aid. The same study found that loans were sometimes referred to as awards, making the packages appear more generous than they really were.
All the jargon and different terms can make it hard to decipher, but at its heart a financial aid package is a list of different amounts of money in different forms of loans, grants, work-study, or other tuition waivers that should add up to cover the cost of the college, minus your expected family contribution.
Yet, you may have to decode the language and research each of the line items. Sometimes, for example, instead of clearly identifying loans as such, they might be simply denoted with abbreviations like “L” or “LN” in the award letter. Here are the different types of financial aid you may see in your financial aid package:
• Grants and scholarships: These don’t have to be repaid, so they are sometimes referred to as “gift aid.” These could be school, state, or federal scholarships and grants you qualified for and were awarded.
• Work-study: This is part-time work you will do and be paid for. You’ll be paid at least the federal minimum wage, but depending on the job, you could earn more. Being granted work-study in your aid package does not always guarantee a job. Depending on the school you attend, you may be matched with a job or you may have to apply for and secure your own job.
• Federal loans: Federal loans can be either subsidized or unsubsidized direct loans, usually have lower interest rates than private loans, and typically have a cap on how much you can borrow.
Subsidized loans are for undergrads and are awarded based on financial need; additionally, the government pays the interest on them while you’re in school at least half-time, during your grace period, or during periods of deferment.
Unsubsidized loans are available to undergraduate and graduate students and are not awarded based on financial need. This type of loan accrues interest while a student is enrolled at least half-time, during the loan’s grace period, or during other periods of deferment.
Borrowers have the option to make interest-only payments during this time, but are not required to do so. If the interest accrues, at the end of the deferment period it will be capitalized or added to the principal value of the loan.
There are also PLUS loans for parents and grad students, which are also unsubsidized.
Private student loans are not part of a federal financial aid package. Private student loans are loans from a private lender, which typically have more stringent financial qualifications and, like federal loans, must be paid back with interest. Typically, that interest also accrues while you’re in school.
Check the terms of any private students loans you’re considering and the interest rate being offered to get a sense of how they stack up to federal loans.
In order to make the decision that’s best for you, you’ll want to compare the total cost of college, how much gift aid is being awarded, what in your financial aid package has to be repaid and on what terms, and how much it will, in total, cost you.
The total cost of attendance may change over a student’s enrollment, so it generally needs to be calculated each year. Consider things like fluctuation in tuition rates, federal interest rates, and your financial aid award which, among other factors, have the potential to change.
Tips on How to Compare Financial Aid Packages
One of the most important things to look at when comparing financial aid packages for college is the net price. What that means is the actual cost to you, minus all awards. To find the net price you need to figure out the total cost for each college and then subtract the amount of grants and gift aid (e.g., not loans).
Factor in, then, how much and on what terms you can take out in loans. And then you can calculate how much each college will cost you additionally out-of-pocket.
Just because one school is giving you more in financial aid doesn’t mean it’s necessarily the best financial option if it ultimately will cost you more because the college is more expensive and, perhaps, the private loans you’d need to get to cover what your federal aid doesn’t cover have higher interest rates.
However, a financial aid package won’t always list the net price and many of the financial aid award letters don’t even necessarily tell you how much a specific college costs in total.
Some letters only outline the direct cost to the school—e.g., tuition and fees—but don’t include room and board or other expenses.
It can be helpful to make your own spreadsheet to ensure you’re comparing apples-to-apples. Figure out the total cost of attendance for each school you’re considering. Include tuition, fees, room and board, and you can even estimate expenses like books, supplies, and living expenses.
Note how much is being awarded in gift aid (grants and scholarships), how much you’re offered in private and federal loans, and how much it’ll cost you out-of-pocket.
The Institute for College Access and Success also suggests finding out if scholarships or grants will be awarded every year or if they’ll run out after freshman or sophomore year.
And note that you can take out less in loans than is listed in your package if you don’t need the full amount, which will likely help save you money in the long run.
If Your Financial Aid Package for College Isn’t Enough
Sometimes you do the math, compare all the costs, and feel like your financial aid package for college just isn’t adding up.
It is possible to appeal a financial aid package, particularly if you’ve had changed circumstances or if there was a gap between the cost and the award. While writing an appeal letter might be a first step if your financial aid package isn’t enough to cover the cost of college, it doesn’t guarantee your award will change.
It also might be the case that circumstances change and you lose your financial aid or portions of your award package. In these situations, there are options in addition to or besides appealing.
You can look into private scholarships, of course. These are different from the scholarships and grants awarded by the state or school. However, private scholarships considered non-need-based aid and will factor into the cost of attendance—and each school deals with that differently.
Another option is to look for more on-campus or part-time work. You could also consider private loans to make up the difference in cost.
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