What you want to look for on your financial aid award letter

Financial Aid Letter Part #1: Cost of Attendance

First off, take a look at the make-up of the cost of attendance. Some colleges will break out the expenses into categories like tuition, books, room and board, travel, and personal expenses. Colleges may differ on what they include in the cost of attendance in your letter. You want to be confident you are comparing apples to apples throughout this process. Make sure you are clear on what has been factored into the cost of attendance and, more importantly, what has not been incorporated into the cost of attendance. For every school make sure you know the following items- that way they will not appear mysteriously on your tuition bill when it arrives!

-Tuition
-Books
-Housing (Whether on or off campus. If off campus ask for a ballpark figure for local apartments)
-Parking/Transit
-Activity Fees (These can often be applied to all students to pay for the schools campus activities)
-Health Care Fees
-Technology Fees
-Mis. Other Fees (University/College fees, room usage fees, athletic center fees… etc.)

Financial Aid Letter Part #2: Expected Family Contribution

Secondly, you want to locate what the school is expecting you and your parents to contribute out of pocket based on the financial aid office's assessment of your and your parents' financial situations. Some schools will provide a single "Expected Family Contribution" while others may break this amount into a Student's Contribution and Parents' Contribution. This is the school basically saying "We looked at your finances, and we think you and your parents can afford to pay $___ toward college."

More often than not this number is not what the parents and student are planning on contributing out of pocket each year, but according to the formulas that the Financial Aid offices and the FAFSA folks use that’s what you should be contributing and there isn’t a whole lot you can say about it.

Financial Aid Letter Part #3: Financial Aid Offered - Amount and Mix

Now, we get to the real guts of the financial aid award letter where the school lays out what types of aid they are offering and how much of each type. This is where you really want to take a good hard look and make sure you understand what's going on. The mix of the financial aid is as important (if not more important) than the amount.

-Free money (that means scholarships and grants) is the best type of financial aid.

-Federal loans such as Perkins Loans and Subsidized Stafford Loans are better than private loans, but they still need to be repaid.

-It's also important to remember that you don't just get federal work-study money. You're going to have to get a job on campus and actually earn that money. The federal work-study amount on your letter is the maximum amount you can receive, not a guaranteed amount.

So to recap, here are the financial aid types from best to worst:

 1.   "Free Money"... that's scholarships and grants (renewable scholarships are better than one-time awards)

 2.   Federal loans (Perkins, subsidized Stafford , unsubsidized Stafford )

 3.   Private loans

Financial Aid Letter Part #4: Unmet Need

The next step is determining if there is any unmet need. You can determine the unmet need by: taking the cost of attendance and subtracting the expected family contribution (what the school said you can afford to pay) and the financial aid package (what the school has offered you to meet your financial need).

In mathematical terms:
Cost Of Attendance - (E.F.C. + Financial Aid) = Unmet Need.

Typically the lower the unmet need, the better. However, as we said before, a school may be offering less aid and leaving you with more unmet need, but may actually still be a better deal if their financial aid package contains mostly "free money" and fewer loans.

If you have unmet need you will need to either take out a private loan, or set up a direct payment plan with the college. One advantage to the payment plan is often it will end up saving you a lot of money in the long run with interest on the private loans, as often they are significantly higher than the federal loans. If you do decide to take out a loan from a private lender start with your bank, as often banks will offer lower interest rate loans to their customers than some of the larger lenders (Sallie Mae, My Rich Uncle, etc.) will have. These will usually also be credit based loans, so expect to need a co-signer on many of them.

Questions You Should Ask

How will my financial aid package change over time?

The package you receive your sophomore year may look different than the one you receive for freshman year. Find out whether scholarships are renewable or one-time awards. See if there are certain requirements for keeping scholarships (e.g., maintaining a 3.0 GPA). Also the amount that you are eligible from the federal government will increase each year, so ask what the limits are for each year you are in school.

How do outside scholarships affect my financial aid package?

If have done a great job searching for scholarships and have won a few awards, make sure you understand how these scholarships will impact your package. Some colleges will reduce the loan component to offset these outside scholarships, while others will unfortunately reduce the scholarship / grant component of your financial aid package. Colleges will usually spell out this information in their Outside Scholarship Policy.