Making Sense of Your Financial Aid Package

Making Sense of Financial Aid Awards

Published on April 5, 2019

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Months ago, as you engaged in the grueling task of completing the financial aid applications, it was the promise of the “just reward” that kept you going. Now that the award letters are in hand, you are left wondering, “What does it all mean?”

A young woman shared with us the financial aid award letters she had received from 10 different colleges. Never mind that she had allowed her list of colleges to grow too long (16!); she had been admitted to 10 and had received various forms of financial aid from each of them. With an Expected Family Contribution (EFC), per the FAFSA, of $5,000, the award letters were predictably generous. They were also troublingly inconsistent.

For example, two of the schools, at total costs of $39,825 and $61,740, respectively, appeared to cover the entire cost of attendance with financial aid. The first included modest “self-help” (loan and work study) totaling $2,565, in addition to more than $37,000 in grants and scholarships, in its financial aid offer.

The second college issued a financial aid award letter that featured $36,900 in grants/scholarships. The balance ($24,840), however, was covered by loans and work study! On the surface, it seemed both schools were being quite generous in covering all costs. Upon closer examination, however, the difference in “out-of-pocket” expense for this family at the two schools would be greater than $20,000—all with the same EFC!

The wide variance in financial aid awards in response to the same financial circumstance is the result of “differential need analysis” (using the need analysis that is most favorable to the institution’s objectives) and “preferential packaging,” a widespread practice that enables institutions to create financial aid awards strategically in an attempt to leverage the enrollment of the students they value most. In the case of the latter, students who are more highly regarded typically receive financial aid that includes greater portions of grants—and, possibly, scholarships.

Conversely, the attitude toward other students, whose credentials were strong enough to warrant their admission, but not strong enough to gain them superstar status at a given school, is that “if they (the students) want us badly enough, they will find the means to make it happen.” It is when families, often deliriously wide-eyed with their students’ acceptances into high-profile schools, buy into this logic that they open themselves to unreasonable debt burdens.

As you compare financial aid award letters, then, you need to get to the bottom line “out-of-pocket” expenses for each. Where does the bottom line create the least amount of debt exposure to your family? Unfortunately, the award letters don’t always spell that out for you. The following tips are offered to make sure you are comparing apples to apples.

Identify the total cost of attendance for each institution. This will include tuition, room and board, as well as books, supplies, activity fees, lab fees, and possible transportation expenses. You may need to consult the school’s website for a complete list as very few award letters provide a complete documentation. A phone call to the financial aid office can produce the same information.

Add all of the grants and scholarships listed on the award letter together. These funds comprise the “gift” aid you are receiving—money you don’t have to repay. The sources of these funds may include the state and federal governments as well as the institution itself. It is not actually cash you will see. Rather, it represents a discount on the cost of attendance.

Subtract the total amount of “gift” aid from the total cost of attendance to determine the total out-of-pocket expense for your family.In most cases, institutions will offer a standard “self-help” component to the financial aid award that includes a Guaranteed Student Loan (Stafford) of $3,500 and a campus work-study opportunity worth up to $1,500. These are funding sources that will help you address out-of-pocket expenses. Note that the two figures are likely to increase in subsequent years: the total cost of attendance and the amount of the loan eligibility attributed to the students. Moreover, additional loans authorized for the student or the parents (PLUS Loan) may be offered in place of “gift” aid in years two to four.

A word of caution is in order here. If you have somehow managed to pool your family resources into coverage of costs for the first year on the assumption that, because you will appear more “needy” in the second year, you will be treated to more financial aid, guess again! Colleges and universities typically budget financial aid for students in years two, three, and four based on the EFC of the first year. They will have contingency funds available for emergent situations (catastrophic health issues, changing employment status, loss of life, etc.), but not for families who claim sudden poverty because all of their funds were committed to the first-year expenses. In the case of the latter, get ready for a heavy dose of loans for both the student and the parents.

It is not uncommon for the total amount of financial aid offered, both “gift aid” and “self-help,” to fall short of making up the difference between the Expected Family Contribution and the total cost of attendance. This practice, known as “gapping,” is symptomatic of preferential packaging and is employed by institutions that choose not to meet the full need of the student with financial aid. In such cases, the student is left to his/her own devices to find the remaining funds. Unmet need of this nature becomes another factor to consider with your out-of-pocket expenses.

Know the difference between grants and scholarships. A grant is awarded because you demonstrate financial “need.” It should carry forward in subsequent years as long as you continue to demonstrate need and remain in academic good standing. A scholarship is offered in recognition of merit and will likely carry with it academic and/or performance renewal terms.

If you receive a financial aid award that includes both grant and scholarship components, be sure to read the renewal criteria carefully. It is possible that the institution could “pull” the scholarship if performance criteria are not met in subsequent years, leaving you to find the resources elsewhere (more loans!).

In the event you do not qualify for need-based financial aid and are trying to reconcile out-of pocket expenses (full cost of attendance) against scholarships that have been awarded, you need to know that you are at the mercy of the institution. The cash flow issue is yours and not theirs. While some might respond to an appeal, don’t expect big changes in scholarship amounts.

Appeal financial aid awards, including scholarships, with information, not emotion. If your family’s financial circumstances have changed since you completed financial aid applications, submit written appeals to the colleges in question along with documentation of the new circumstances. Some colleges will invite you to submit “better” financial aid awards from their competitors as part of an appeal. In any case, keep your cool. You are only entitled to the financial assistance that the institution decides to give you.

In the final analysis, you will have to complete your own cost/benefit analysis to determine whether there is sufficient value to you (educationally) in accepting a financial aid award that might be less than you need or would like. Now is the time to weigh your options carefully. Make sure you are entirely comfortable with your ability to manage the cost of attending a college before you submit an enrollment deposit.

Download this “Comparing College Costs Worksheet” to help you organize and compare the data you are seeing on various financial aid award letters.

Written by Peter Van Buskirk, Director of Student Advocacy