If it’s past the deadlines for submitting college applications, your student is either waiting to hear about all their admissions and financial aid awards, or you have them all and you’re deciding how to compare them.
At this point in the process, don’t overlook the following.
Understanding Your Financial Aid Award Letter
- Make an “apples to apples” comparison of financial aid awards.
Parents shouldn’t need a PhD in economics to read financial aid award letters, but sometimes it feels like that. Many award letters are constructed to make it less than clear how much money a school is providing and how much the family is expected to borrow.
We suggest using the Compare Schools tool from the Consumer Financial Protection Bureau because it pulls up existing data for schools as you enter their names, including costs, default rates, and graduation rates.
- Understand how outside private scholarships impact financial aid.
Outside scholarships must be reported to the college financial aid office and may affect your financial award.
Unfortunately, many schools decrease the amount of aid they give by the amount of the private scholarships. This is called scholarship or award displacement. Each school has a different policy for how they handle outside private scholarships, so contact your student’s colleges to find out more about their policy for private scholarships.
- Know the difference between net price and net cost.
After deciphering all the information in your student’s financial aid award, you should be able to tell the different between the college’s net price and your net cost.
Net Price is how much the college is charging you, after you subtract any gift-aid, such as scholarships and grants.
Net Cost is how much your family needs to pay, after all financial aid awards including student loans and work-study are accounted for.
When comparing colleges, families should be using Net Cost and not Net Price.
Unfortunately, after understanding your net cost, you may realize if you need additional loans, beyond your student’s allotted federal loans. You’ll then need to consider.
- What is gapping?
Financial aid gapping occurs when colleges do not meet 100% of a student’s need.
Don’t forget, a student’s financial need is either determined by the FAFSA or, depending on the school, the CSS Profile. Colleges use these forms and the accompanying information, to determine how much a family can afford to pay for college (of their EFC).
By default, the difference between a family’s EFC and the total cost to attend college, is their financial need.
Because of these calculations, a family’s financial need may be different at each college.
Colleges are not obligated to meet 100% of a family’s financial need.
When the financial aid award is less than a family’s need, there is a gap.
Sometimes, the existence of a gap isn’t obvious because the financial aid letter includes PLUS or private loans that cover the gap. But such loans should not be counted as money from the college to meet the student’s financial need.
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