7 Things You Must Understand About Your Financial Aid Offer

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May 1 is the deadline date for college bound high school seniors and their parents to decide which college acceptance offer to select. And according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com and author of the new e-book “Secrets to Winning a Scholarship, for many families one of the most crucial deciding factors will come down to financial aid.

Kantrowitz recommends that parents and students need to carefully review their often complicated and confusing financial aid offers so they don’t make costly mistakes when deciding on which college to select. According to Kantrowitz many colleges try to purposefully complicate their financial aid offers for competitive reasons and to make their financial aid award offers appear more generous. Simply put, “It’s marketing. Partly to convince you to go to college, this college,” he explained. “I often hear from families who think they got a free ride, but the award letter includes a $10,000 PLUS loan.”

In order to understand what is being offered in the financial aid letter, Kantrowitz recommends the following steps:

  • Calculate the total out-of-pocket costs, the difference between total cost of attendance and total gift aid (grants and scholarships).

The total cost of attendance includes tuition, required fees, room and board, transportation, supplies, textbooks, health insurance, and personal expenses. The total gift aid includes grants, scholarships, tuition and or housing waivers. Essentially, gift aid is aid that does not get repaid. To arrive at the out-of-pocket cost subtract the gift aid from the total cost of attendance. The total out-of-pocket costs are the amount the family must earn, pay or borrow to cover all the costs.

In all likelihood you will need to hunt down all of the cost data since one third of colleges do not list all the costs in their award letters.

  • Contrast gift aid with loans, which have to be paid usually with interest.

According to Kantrowitz, financial aid award letters are often very confusing to decipher between what is gift aid and what are loans. Most colleges do not detail interest rates, fees, payments and total loan cost in the financial aid award letter. In addition, many colleges include non-need based loans on the award letter. You don’t need to accept these loans and can also accept a lower amount. Make sure you understand the terms of the loan and how much interest is charged.  If it is not spelled out in the award letter then you will need to contact the financial aid office and ask.

  • Contrast total out-of-pocket costs with net costs.

Net cost is the difference between total out-of-pocket costs and financial aid including loans.

  • Ignore work study awards when calculating your financial aid package.

Work study jobs can be hard to find. It is often difficult to work the full hours. Moreover, there is no guarantee that a student will be able to get a work study job even if it is in the award letter. Some colleges assume that some students will not work the work study jobs so the colleges in turn award these jobs to more students than there are jobs.

  • Find out if the college you are considering front-loads their grants and scholarships.

Front loading means higher grants and scholarships the first year, lower amounts in subsequent years. Specifically, college bound students have to ask the college if they front-load their grants and scholarships. “The goal of front-loading is to reduce the debt of students who drop out but it also makes the college look more generous,” explained Kantrowitz. “It is very important to know if the college front-loads grants since it can increase costs a lot the following years.”

  • Understand how private scholarships affect financial aid awards.

Winning an outside scholarship will reduce a need-based financial aid package. Each college has a policy on how they handle private scholarships. Each college has the flexibility to choose to replace loans, work study or grants. The outside scholarship policy isn’t always in the award letter. You may have to call the financial aid office and ask or look on the college’s web site.

The best option for the student is for the private scholarship to reduce loans and work burden. “But in most cases, outside scholarships reduce college’s aid, not federal aid. So don’t blame the feds for the college’s policy,” said Kantrowitz.

  • Research what the projected cumulative debt will be at graduation.

Kantrowitz recommends that the total education debt at graduation should be less than the expected starting salary or difficulty repaying loans. “If there is more than $10,000 per year in projected debt, consider a less expensive college.”

The number one reason for dropping out of college is money problems. But, by understanding all of the elements that make up your financial aid package from each college and then comparing them, students and families will be in a much stronger position to select a college that they can afford.


  1. [...] This can make a college or university appear to be more generous for a student evaluating different financial aid [...]