Understanding the Financial Aid Award Letter

Financial aid award letters outline the type and amount of aid families can receive, such as scholarships, grants, and loans. Sometimes these letters can be difficult to comprehend, but the following information can assist in understanding what the letter means.

Financial Calculations
This section shows a summary of the cost of attendance for each school, the expected family contribution, and the financial need.

• Cost of Attendance (COA) – includes tuition and fees, books and supplies, living expenses, transportation, and personal costs.
• Expected Family Contribution (EFC) – the amount that the government has determined each family can contribute toward the cost of a student's education.
• Financial Need – COA minus EFC=Financial Need. This figure is how much financial assistance a student will need at a particular school. Financial need varies from school to school.

Financial Aid Awards
There are two types of financial aid awards: gift aid and self-help aid. Gift aid does not have to be paid back. Self-help aid must be repaid through money or labor.

Gift Aid

• Scholarships are based on merit (for example: good grades, music ability, or athletic skills). Some are also based on need. Scholarships are offered through colleges, the community, and other organizations.
• Grants are awarded by the federal or state governments or by the school. Examples include the Federal Pell Grant and the Federal SEOG (Supplemental Education Opportunity Grant).

Remember that the financial awards listed above do not have to be paid back.

Self-help Aid

• Federal Work-Study is awarded to students with financial need. Students can work part-time to earn this award money to help with the cost of attendance. Work-study jobs can be found on or off campus through the school's Financial Aid Office.
• Federal Perkins Loan is a low interest rate loan that aids students with a large financial need. As long as the student is enrolled in school, the federal government pays the interest on this loan. Financial aid officers at each college determine which students receive these loans and how much they receive.
• The Federal Subsidized Stafford Loan is a need-based loan with a low interest rate that is currently fixed at 6.8 percent. Freshmen may borrow up to $2,625, sophomores up to $3,500, and up to $5,500 for the remaining undergraduate years of school. Graduate and Professional students may borrow up to $8,500 per year. The federal government pays the interest on the loan while students are enrolled in college at least half-time and during deferment and grace periods.
• The Federal Unsubsidized Stafford Loan is non-need based. All students, regardless of need, can receive this loan. For dependent students, the annual loan limits are the same as Subsidized Stafford less any amount of subsidized federal loans received. For independent students, the annual loan limits are the same as Subsidized Stafford plus these additional amounts up to the cost of education: years 1 and 2 = $4,000; years 3 through 5 = $5,000; graduate/professional = $10,000. Students are responsible for paying the interest while enrolled in school and during any grace period or deferment.
• The Parent Loan for Undergraduate Students (PLUS) is non-need based with a fixed interest rate that cannot exceed 8.5 percent. These loans are available to parents of undergraduate dependent students, but the parents must have a good credit history. Parents can borrow up to the cost of education as determined by the school minus any financial aid received. Repayment usually begins within 60 days after funds are disbursed. However, rates, benefits, and deferment options vary for each organization or bank offering the PLUS Loan.
• Alternative or Private Student Loans are offered through organizations and banks. Rates, repayment plans, and borrowing limits vary for each organization or bank.

Remember that any self-help aid must be repaid through money or labor. For more information about Subsidized and Unsubsidized Stafford Loans, PLUS Loans, and private student loans visit the Student Loan section of this site.

Comparing the Financial Aid Award Letter
It is important to compare the different financial aid award letters received from each school in order to make an educated decision on which college is best. In order to make comparisons, each family should follow these guidelines:

• Compare like terms. Families should make sure that the cost of attendance is the same for each school before comparing. Some schools may not include transportation or personal costs in their estimated cost of attendance.
• Compare ratio of gift aid to self-help aid. Generally, packages with a higher proportion of gift aid are more appealing because students may have less debt when they graduate. However, more gift aid may mean a larger family contribution at some colleges.
• Compare the terms of any loans included. Will the payments be affordable? Student loans with low interest rates and no repayment until after college may be more affordable than unsubsidized or private loans.
• Compare the effect of scholarships on other aid. If students are applying for or will qualify for outside scholarships, they should determine if it is possible for a scholarship to reduce their financial aid package.
• Check on future packages. What part of the financial aid award is renewable from year to year? Are there requirements for maintaining the awards?

After Receiving the Financial Aid Award Letter
After reading the financial aid award letter, families may realize that the awards listed are not enough to cover all expenses. However, there are other loan options that may not be shown on the letter. Parents may be eligible for the Federal PLUS Program or students could consider getting a private student loan. 

After receiving the financial aid award letter, students must let the school know whether or not they are accepting or declining the awards. Not everything that is offered has to be accepted. Declining an award will neither help nor hurt the award. Students should pay close attention to deadlines for accepting the award package. Deadlines are usually within two weeks after receiving the award letter. If a deadline is missed, students may risk losing a scholarship, grant, or loan assistance.

For more information about the financial aid award letter, contact the Financial Aid Administrator from the college.