College Aid Award Letters

A college aid award letter is a document that outlines the financial aid package offered to a student by a college or university. It typically includes information about costs:??

1. Tuition
2. Room
3. Board
4. Fees

It will also have information on aid:

1. Grants
2. Scholarships
3. Loans
4. Work-study opportunities that are available to the student

You’d think it’d be easy based on this to understand and compare award letters. Unfortunately, it’s not. The Government Accountability Office released a report ?regarding College Financial Aid Offer.

From their webpage: “According to best practices, colleges should estimate the net price—how much a student will pay to attend that college—by deducting only grants and scholarships from all key costs like tuition, books, housing, and meals. But about 91% of colleges understate or don't include the net price in their offers.” [emphasis added]

To decipher a college award letter, here are 2 GI Bill questions to understand and 6 general questions to ask to be able to make comparisons between different schools.

GI Bill Questions

1.??Does the school apply any of their aid to room and board which is not covered by the GI Bill?

I don’t know how common this is, but one of the schools my daughter is considering said they would apply her merit award to room and board while she is the GI Bill. I haven’t seen it in an official award letter yet, but this could be significant. Schools that did this would significantly help families who are splitting the GI Bill because they could take the BAH money and use that for later years or put it in a 529 for younger children.

2.??How does Yellow Ribbon work at the school? Is it guaranteed for all four years?

Some schools only provide a limited number of Yellow Ribbon scholarships or a limited amount of money. Make sure you understand if you get it as a freshman will you automatically get it in future years or will they need to apply (and possibly not get it) in subsequent years?

General Questions

1.??How much is “gift aid”?

One of the things schools often do it roll work study and loans into the cost calculation. This is to make the net cost look smaller. The problem is neither of these is truly aid. This is self-help. A school may send out the first year award letter and say total due is $15,000, but they’ve included $5,500 of Federal Student loans that will need to be paid back. Total cost was actually $20,500.

Some schools will even send out net cost bills showing $0 because they’ve included Parent-Plus Loans of 10, 20, or more thousand dollars. Again, this money needs to be paid back.

2.??Is the award “front-loaded”?

To compare apples-to-apples between schools, you need to ensure you have the 4-year net cost for each school. One thing some schools do to entice you is to provide additional scholarships or grants in the first year to get you to commit. When reviewing any aid, ensure you know if the aid is available for that year or for all years.

3.??What is the criteria for renewable scholarships?

Many scholarships are tied to a GPA or possibly even a major. Make sure you understand what the requirements are each year. Also, you may want to check the graduation rate for the school to see if most students get done in 4 or 5 years. If the latter, you may want to see if the aid is available in should your child not graduate in 4 years.

4.??Is tuition locked for all 4 (or 5) years?

Some schools lock tuition based on freshman years while others increase it each year. Make sure you understand which your school does.

5.??How much will loans cost you?

I’ve written about loans and how much is too much here (LINK). The general rule of thumb is don’t take total loans that are more than the student is expected to make in their first year of work.

You should also estimate payments. A rough estimate for every $10,000 in loans, it’ll cost be $100-125 per month over a 10 year payment period. Finaid.org also has a good calculator. https://finaid.org/calculators/loanpayments/

6.??What is the net price for all for years?

To compare apples-to-apples, I suggest building a simple spreadsheet and taking the information from the award letters to be able to see your true net cost for each school.

Additionally, the Consumer Financial Protection Bureau (CFPB) has a tool on their website for assessing financial aid award letters.?

Wrap Up

Remember, college is big business. The school’s goal is not to help your family make the best decision. Their goal is to get students into slots to meet their expenses. Understanding how they do that is critical to be an informed consumer.

About Mike Hunsberger, ChFC?, CFP?, CCFC

Mike Hunsberger is the owner and lead planner at Next Mission Financial Planning. Next Mission Financial Planning provides comprehensive financial planning and investment management for military and veteran clients. Mike started the firm after spending 25 years in the Air Force.

Schedule a call with Mike