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What does your Financial Aid Award Letter Really Mean?

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For high school seniors, spring is a nerve-racking season to walk to your mailbox!

First, there is the much anticipated acceptance letter.  But even more important, there is your financial aid award letter.

If you completed the FAFSA and applied for financial aid for the 2011-2012 year, you should be getting your financial aid award letter any day now – if you haven’t gotten it already!

While most schools send them out around April 1, some schools wait until early May to send out theirs, so don’t worry if you still haven’t gotten it yet.

For those of you who applied to more than one college, you must now do a quick comparison of your award letters to determine which school is the best fit – financially – for your family.

Financial aid award letters aren’t always straight forward to decode; in fact, the school offering the biggest award may not actually be the least expensive.

If you need to compare your award letters, here are the four most important pieces of information you need to write down:

  • The total amount of college financial aid you have been awarded
  • The total amount of "gift" assistance vs. loan assistance. Gift assistance refers to aid that never has to be repaid, such as scholarship, grants or work study. Stafford and/or Perkins loans obviously need to be repaid, making the gift assistance more "valuable" in your equation. Look at the language on your letter carefully – as some schools calls student loans "financial aid", which may make it a bit confusing to differentiate.
  • The total amount of unmet need. Some schools will meet all of your "family need" as determined by the FAFSA – although the combination of gift vs. loan assistance may vary from school to school. Some schools, however, will not meet all of your family need and this will be the so-called unmet financial need.  Again, look at the language of your letter carefully, as some schools have both an "unmet need" and a "family contribution" category. In reality, you or your family will need to cover both the unmet need and the family contribution.
  • The total cost of attendance – this includes tuition, room, board, travel and other incidentals. Most schools will include this figure on their financial aid letter. If not, you can usually find it on the school’s website. Worst comes to worst, call the financial aid office and ask.

Once you have these four figures, it’s time to do some serious calculation. Here’s one example:

School A costs $25,000 to attend. They offered you a total financial aid package of $18,000, with $10,000 in student loans, $2500 in scholarships and $7500 in grants.

School B costs $12,500 to attend. They offered you a total financial aid package of $9,000 – with $3,000 in student loans and $5,000 in scholarships and $1,000 in work-study.

While finances are probably not going to be your only factor in determining which school to attend, this example clearly shows that even with a smaller overall package ($9,000 vs. $18,000), school B is still significantly more affordable overall.

And, in fact, not only is your family contribution smaller – $3,500 vs. $7,000 per year – but your student loan burden is significantly less as well ($3,000 per year vs. $10,000 per year.) Come graduation, a student loan debt of approximately $12,000 total will certainly be much more manageable than one of $40,000 – regardless of what field you choose to go into.

Have you gotten your financial aid award letters yet? Have you discovered a gap between assistance and family contribution? What offer has been most appealing to you?

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