April 9, 2009
Along with acceptance and rejection letters, colleges are sending out another nerve-wracking piece of mail this month: the financial aid award letter. For many families who have only recently discovered the "joys" of completing the FAFSA, the financial aid letter can bring about a whole new kind of terror and confusion. Even for people who are somewhat familiar with aid, deconstructing the naming conventions and occasionally less-than-detailed explanations on various colleges' award letters can be frustrating, as can mounting an effective comparison among differing aid packages. Below is the first part in a series on understanding your financial aid award letter.
Understanding Your Financial Aid Award Letter, Part I: COA and EFC
Two of the most important numbers on your award notice will be the cost of attendance (COA) and the expected family contribution (EFC). These are instrumental in determining your award, and they also have some of the most obscure and misleading meanings. Despite their prominence, they're occasionally tucked in strange places on the letter, such as near the bottom or in a box in the middle. Finding them can kind of be a Where's Waldo moment.
Cost of Attendance
The cost of attendance, often abbreviated COA, is occasionally referred to by other names, such as your "budget." This number is not what you owe the school, nor what a year of education will necessarily cost you there. Instead, it is the average amount paid by a student in your situation: dependent living on campus, independent living off-campus, part-time living rent-free at home, etc. The COA will include tuition, student fees (these could change if you later register for classes with special fees, such as art or aviation), room and board (either what the school is charging you or what the average student in your housing situation pays), books, and miscellaneous living expenses. Your school's financial aid office will likely have a detailed breakdown of this number available online or in the office if you ask.
The important thing to realize here is that this number is significantly higher than the amount of money you will actually owe the school. If you plan on working your way through college or receiving assistance from your parents for living expenses, you may not need aid to cover your full COA. It can still be a good tool for comparing among colleges, though, especially since they factor in handy things like average living expenses in the area.
Expected Family Contribution
The other big number on your award letter will be the expected family contribution, or E FC. Again, this is not the amount your family actually owes the school or is expected to pay out-of-pocket. Instead, this is the amount that, according to the information you submitted on your FAFSA, a family in your situation should ideally be able to contribute towards a college education. This is used to determine your eligibility for "need-based" aid, which includes state and federal grants, work-study, and even subsidized loans. Certain grants and scholarships can only be awarded to students with an EFC below a specific number (for example, 4671 for Federal Pell Grants), so if you are not eligible for grants but your financial circumstances have changed since 2008, talk to your financial aid office to see if your EFC can be adjusted downward.
Your EFC should be the same at pretty much every school, since they're using the same information to determine it (some schools require both a FAFSA and a CSS profile, so there could potentially be some differences). However, it's still useful for comparisons among schools, since you can use it to determine whether your full "financial need" has been met by each school. Like nearly everything else in student financial aid, this term does not necessarily mean what one might think it should mean. Your financial need is a number calculated based on the two numbers we just discussed. Your full financial need is your COA minus your EFC, and your unmet financial need is generally your COA minus your EFC minus any need-based aid and scholarship awards you've received.
So, how do you determine what the need-based awards and scholarships are on your award letter? Check out Part II for that information.
April 14, 2009
Today we move on to the final part of our Understanding Your Financial Aid Award Letter series. If you were lucky enough to have your entire tuition paid through free money for college, then you can stop reading now. But the vast majority of students who apply for aid will be awarded at least one less ideal form of financial aid. Sorting through the rest of your award letter is the tough part--this is where difficult choices may need to be made, including whether and how much to borrow.
Understanding Your Award Letter, Part III: Work-Study and Student Loans
While you probably would not want to decline any of the free money we discussed last week, you may want to turn down some of the aid covered today. You are allowed to decline any assistance on your award letter if you feel you will not need it, and you can also elect to take a smaller amount than what is given. Keep this in mind when budgeting for the year, and don't feel obligated to borrow more than you need. If you change your mind and need this aid later, you can usually get it back.
If you have remaining financial need after any grants and scholarships you've been awarded, you may see an award of federal work-study on your letter. This is a federally subsidized program for students working certain jobs on, and occasionally off, campus. Work-study is not money you will receive up front. You need to get a job that is funded through the work-study program to receive this money, and it will be given to you as a paycheck, not as money off your bill. Since many jobs on campus are reserved for work-study students, it can be a great option if you're planning to work while you're in college.
However, if you already have a job that is not funded through work-study or you do not plan to work, you may want to decline this award. There's no penalty for failing to use your work-study, but if you've been funded to your full need or cost of attendance, canceling your work-study may free up space for more or better student loans than you would have otherwise received.
There are two main categories of student loans: federal loans and private loans. Federal loans include subsidized and unsubsidized Stafford Loans, as well as Perkins Loans and PLUS Loans. Private loans come from banks and typically carry higher interest rates, though some states offer their own low-interest student loan programs. Depending on whether the school you attend participates in the Federal Direct Loans Program, or the bank-based Federal Family Education Loan Program, your federal Stafford Loans and PLUS Loans may be issued by a bank, but their terms are still set by the federal government. We have more detailed breakdowns of the different forms of student loans on our site, but here's a quick refresher, in rough order of desirability.
Federal Perkins Loans
Currently, Perkins Loans have limited funding and are often reserved for students with higher financial need. Schools award these at their discretion, but you apply for them through the FAFSA. However, if you receive one, you may want to take it, as they currently carry the lowest interest rates and some of the most favorable repayment terms. Perkins Loans have a fixed 5 percent interest rate and a 10 year repayment period. They are subsidized loans, which means interest does not accrue while you are in school. They also have a 9-month grace period before repayment begins. The current Perkins Loan limits are $5,500 per year for undergraduates and $8,000 per year for graduate students.
Federal Stafford Loans
You may or may not see a PLUS Loan listed on your award letter. This is a federal loan program that allows parents to borrow for their students, up to the student's full cost of attendance. Some schools include these to fill the gap between your financial aid and your cost of attendance, as a way of letting you know the option exists. While you are guaranteed to receive a Stafford Loan regardless of your credit, so long as you complete a few basic requirements, PLUS Loans, like private loans, require an application and a credit check (if your parents are denied a PLUS Loan, you can apply for additional Stafford Loans through the financial aid office).
Whether or not you see a PLUS Loan on your award letter, if you still need to borrow money to pay for school, this loan can be an option for many. PLUS Loans currently carry a fixed interest rate of 7.9 percent for Direct Loans and 8.5 percent for FFEL. Loans can be repaid immediately or starting six months after graduation, but interest will accrue while you're in school. Research the relative merits of PLUS Loans and various private loans and discuss with your family which option will be best for you.
April 17, 2009
There was an interesting article in The New York Times today offering a rare behind-the-scenes look at a university financial aid office. If you're still baffled by your financial aid award letter, or you just are curious to find out how it was created, this article is a good read. While it focuses on Boston University, an elite and expensive private college, many of the processes discussed carry over to other schools, both public and private.
The article does an especially good job of explaining how financial need is determined, using the FAFSA, the CSS profile and an institution's policies. It also includes a couple of concrete examples of financial aid packages and family circumstances that provide a valuable window into the logic behind determining financial aid awards, especially for families who may have received markedly different offers from different institutions. While I'm not sure how universal the process of weighing aid so heavily in the favor of the top tier of students is, it definitely provides support for the idea of broadening your college search and applying to a wide range of colleges and comparing financial aid offers.
The complex nature of college financial aid awards, as well as the common practice of "gapping," where the school does not cover a student's entire financial need, also make a compelling argument for doing a thorough scholarship search. While some of the largest college scholarships and grants come from universities, there's no guarantee you'll land a full-tuition scholarship anywhere you apply. Winning scholarships from other organizations gives you more flexibility in where you attend college, as well as a greater level of certainty about how much help you'll receive.
April 10, 2009
So you've figured out your cost of attendance, your expected family contribution, and the total amount of aid you're being offered at each college. However, not all aid is created equal, and a package that appears to meet your full need could actually get you into more debt than a package that leaves a substantial gap. A useful move both in choosing a college and budgeting out what you need for the year is to separate the grant and scholarship aid you've been offered from all of the other financial aid. This is going to involve some more math and record-keeping on your part. We'll delve into the best kinds of aid in the second part in our series on understanding your financial aid award letter.
Understanding Your Award Letter, Part II: Grants and Scholarships
College scholarships and grants are money you will not have to pay back. They come from a variety of places and have different terms attached. Grants are almost universally need-based, and will typically be awarded based on your expected family contribution and your estimated financial need. Scholarships are given based on a variety of criteria, and while some may carry a need-based component, not all do. Below are some of the most common varieties of grants and scholarships you're likely to see on your award letter.
There are state grants, federal grants, and institutional grants, but they will likely all be listed in the same place. The most common type of grant is the Federal Pell Grant. For 2009-2010, Pell Grants come in amounts from $976 to $5350 for full-time students. Especially needy students may also receive an SEOG, which stands for Supplemental Education Opportunity Grant. Award amounts vary, but they are usually a few hundred to a few thousand dollars. First-year students may receive an Academic Competitiveness Grant, or ACG, which carries an award of $750 to $1,300.
There are also federal grants for people in specific fields. SMART grants and TEACH grants reward students pursuing training in STEM (science, technology, engineering, and math) fields and education. SMART grants are only available to juniors and seniors who meet eligibility requirements.
Most states have at least one state grant program, and students who met deadlines and other criteria may see an additional state grant award on their letter. Many states also offer major-specific grant programs, as well as grant programs for other specific student populations. You can talk to you financial aid office or visit your state board of higher education's website to find out more about these programs.
Most universities offer at least one need-based scholarship, which is roughly the same thing as a university grant. Numerous varieties of university scholarships exist, but the most common are need-based, academic, major-specific, and athletic. If you've received a grant or scholarship award from your college, you will likely receive a letter explaining it in more detail. Make note of the terms of the award, including whether it's renewable and what conditions have to be met to receive it. This is especially important for college academic scholarships, as many require a fairly high GPA or heavy course load to renew.
It's also important to keep track of the grants, scholarships, and other institutional aid you receive because sometimes the awards may not appear on your first award letter, or they may show up under a different name. Many scholarships come from endowed funds, and you may get a letter giving the more general name of the award, but may see it on your letter under the donor's name. This can cause confusion and disappointment if you think you got a bonus scholarship but actually did not, and if your award is missing, adding it on later may result in your financial aid being recalculated if you're funded beyond your financial need or your cost of attendance.
Finally, if you've received any scholarship money through places other than the university or the state (such as awards you found through our free scholarship search), make sure it's represented on your award letter. Many scholarship providers send the check to your school, and the school will need to make sure it doesn't alter your aid package before they disburse it. If you need the money to pay tuition or buy books, you want to make sure everything's set up so the check can smoothly make its way from the scholarship provider to your account.
If you're comparing offers from different schools, tally up the grant and scholarship aid you will receive this year, as well as the aid you can anticipate in future years. Compare what your total award over four years will be for each school for the most accurate picture of who has given you the best deal.
Now that we've gotten through the free money, we can get to everything else. Check out Part III for information on work-study and loans.
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