Everything You Need to Know About Your Financial Aid Award
The number of students who choose to apply for financial aid is rising with each and every passing year. In California, for example, applications for aid have increased by 74 percent in six years, according to an analysis performed by The Associated Press. As the cost of a higher education continues to increase, and as many families continue to deal with fallout from the housing market crash, help is just required. Without it, many students wouldn’t be able to go to school at all.
Thankfully, statistics also suggest that those students who do apply are being rewarded for their time and effort. The National Center for Education Statistics suggests that the number of fulltime, first-time students at the undergraduate level who got financial aid packages for 4-year institutions increased from 75 percent in 2006-2007 to 83 percent in 2010-2011. Students need help, and thankfully, there are funds available to meet that need.
At the end of the application process, students are provided with a significant amount of information that details what sort of assistance they qualify for and what they’ll need to do in order to take advantage of that help. Often, this information is detailed in a Financial Aid Award Letter from the school, and all of the data is laid out in an easy-to-read format. But comparing one letter to another can be a little tricky, and some students don’t understand all of the terms they see on their letters. This article will help, as it will outline what’s typically included in a letter and what sorts of questions are appropriate for any student to ask when that letter comes.
Students who want to tap into the wealth of resources available through the U.S. Department of Education begin the process by filling out a Free Application for Federal Student Aid (FAFSA). Filling out that form means providing data regarding a student’s financial health, as well as the financial health of the student’s parents. This information is reviewed at the federal level, but that information is shared with the schools the student is considering. In most cases, communication about the rewards the student will earn come directly from the schools, and not from the U.S. Department of Education.Many colleges and universities augment the financial aid a student can receive with their own sources of funds. They might provide students with access to funds that were donated by alumni members, for example, or they may have their own pools of money available for recruitment and retention. Some schools use the FAFSA to make their decisions about who gets these funds, but other schools ask students to fill out supplemental forms in order to access these other sources of aid.
Once all of the forms are complete, and the schools have accepted all of the applications that they can before the filing deadline hits, the administrators at these schools send out a formal letter that details a student’s financial aid package.
Using the University of Minnesota as an example, this letter details:
- The average cost of attendance of the school
- The amount the family is expected to contribute (calculated via the FAFSA)
- Forms of aid coming from the local level
- Forms of aid coming from the governmental level
The University of Minnesota and many other large institutions use the Internet to deliver this information. Students receive an email with login instructions, and they follow those directions to tap into a secure website that contains all of the information they need about the aid they qualify for.
Aid Types Shown
While these offer letters might suggest that a student qualifies for a significant amount of assistance in order to pay for school, not all of the sums shown here are free for students, and some come with some very severe restrictions that could eliminate a student from compensation altogether. It’s difficult to list all of the funding sources that might be included on a letter, as they can vary dramatically from institution to institution, but these are a few different categories students can watch for.
Grants, whether they come from the federal government or local sources, are typically considered free forms of aid. They’re distributed based on need, so students who qualify for this kind of assistance typically have a very low ability to pay back any kind of loan. A grant is designed to help fill that gap, so these needy students can get the education they’ll need to improve their financial standing.
Scholarships work in much the same way, but rather than focusing exclusively on need, many of these programs look for a specific achievement or attribute before distributing funds. Academic prowess, athleticism or creativity might all factor into the award of a scholarship, and often, students must continue to excel in their specific attribute in order to keep these funds flowing.
Subsidized loans are based on need, not academic prowess, but students are expected to pay back this form of aid. They may not be required to start making payments until they graduate, and the interest they accrue while in school is covered, but the funds can rack up with time.
Non-subsidized loans and private loans might also appear on a financial aid award package, and their inclusion can be a little confusing, as these aren’t really forms of aid at all. Instead, these are basic loans that come with competitive terms and an expectation of repayment. Students who take on these loans should understand that they’re on the hook for the balance.
Making Sense of the Letters
Colleges and universities are allowed to customize their awards letters, meaning that each and every letter that comes from an institution of higher learning might look just a little different. The U.S. Department of Education suggests that students should look for offer letters that include a significant amount of free money. While work-study programs and federal subsidized loans can help to pay for school, free money should be accepted first.
But students might also be wise to consider how much attendance at that school will cost, when all of their expenses are included in the equation. For example, the offer letter from the school might include the price for tuition, but the student might also incur costs due to:
- Transportation from home to school
- Room and board
- School fees
Some schools might be more expensive due to their location, while others might be much less expensive, as they might allow a student to live at home. Placing these comparison costs into the equation could throw a completely different light on an award letter, and that might help a family to make the right decision.
Tips on evaluating your financial aid award
In order to know how good (or bad) your financial aid award is, you need to consider a few things:
- The cost of the college (called the cost of attendance or student budget). This encompasses all costs for one year of college and includes tuition and fees, room and board, books, transportation, and other expenses.
- Your EFC (Expected Family Contribution). This is the minimal amount you will be expected to pay out-of-pocket for a year of college as calculated by the FAFSA and/or the CSS Profile.
- Demonstrated need. This is the amount of aid for which you are eligible. It is based on the cost of college and your EFC. The formula goes like this: [Cost of college] — [EFC] = [Demonstrated need].
- The amount of aid offered by the college. Add up all the aid in your financial aid award from the college. Do not include any parent PLUS loans which are not need-based aid (in other words, almost anyone can get a PLUSloan). See if the aid given by the college adds up to the total demonstrated need. If not, you have unmet need. That is, the college did not award you enough aid to satisfy your entire demonstrated need. In short, you would need to contribute more than just your EFC in order to pay for this particular college. Parent PLUS loans andprivate student loans are good options in this scenario.
- The kinds of aid in your award. There are two categories of financial aid:
- Free money, which are grants and scholarships that don’t have to be paid back
- Self-help aid, which are loans and/or federal work-study where the student either has to pay back the money or has to work for it.
You want to try for a financial aid award that has some balance between self-help aid and free money. As a general rule, a small demonstrated need is usually met with mostly if not all self-help aid. Larger demonstrated need tends to have a better balance simply because there is not enough self-help aid (federal loans and work-study) available in the financial aid system. If the award, particularly a large one, seems too skewed on the side of self-help aid, then you may want to discuss this with the financial aid administrator at the college.
If any of the above pieces of information listed above are missing or unclear from your award letter, you should contact the college immediately and request that it be supplied. For incoming college freshmen, you should understand that assuming your family’s financial situation doesn’t change dramatically in the next few years, the offer for your freshman year is likely to establish a template for all four years. That is why this initial award merits your special attention.
In most cases, students will have the opportunity to go online and discuss the facts and figures they see on their letters. But they’re not required to simply accept or deny the numbers they see. In fact, students can do quite a bit of tinkering with the funds they qualify for. They might take out a smaller amount of money in a loan, for example, or they might refuse to engage in a work-study program and take out more in a private loan instead. These sorts of alterations are considered perfectly legal, and they can help students take control of the debt they’re incurring with their education.
But at some point, students will be required to sign off on the loan package they’d like, and if there are loans involved, there may be formal promissory notes to sign that specify how much the student will borrow and when the payments will begin. These are legal documents, enforceable in court, so it’s vital that students understand all of these terms before they sign.In addition, some students go through financial changes in the weeks that follow the loan application process. They might be given local scholarships, for example, or they might come into money through an inheritance. Any major change like this should be reported to the school administrator before the package is distributed, so the process can be fair and equitable for everyone involved.
It can be a little intimidating for students to look through the numbers, parse the terms and come up with the right mix of finances that could help them to pay for school. Thankfully, colleges and universities have helpful financial aid officers who are qualified to explain what’s on the letter and what the student’s responsibilities are, in terms of repayment. These professionals are often happy to make appointments for students who have questions, and they’re quite capable of explaining terms in language any student can understand.
If you’ve walked through the numbers on your offer letter and you’re still not sure how you’ll be able to pay for college with the packages you’ve been provided, we’d like to help. Our search tools can allow you to find scholarships that could help you to cover the cost of school, and our loan partners can supply you with the funds you’ll need to cover your tuition costs. All of our tools are free, too, so you can do some experimenting and tinkering as you determine where you’ll go to school and how you’ll pay for the fees involved. Just click to get started.
If you need a substantial amount of aid, the wait list is not where you want to be. By the time you are accepted, the college may claim that this year’s financial aid money is already committed to others. So you may find that you are admitted eventually, but the pool of financial aid has dried up. If you require only a small amount of aid, there is probably enough public money to cover your need. You may be able to get the college to commit to meeting your future need for aid, even though this year they have a shortfall; ask the college to provide a preview of what you can expect a year from now. You’ll have to take their answer on faith
As a family of immigrants, what if I do not have the proper documentation for eligibility for federal financial aid?
This is a tough question. Many immigrants are caught in a twilight zone as they grow old waiting for action by the INS.Meanwhile, here are some strategies you can take as you apply for financial aid:
- If you can provide documentation of an application for a green card, many colleges will grant federal and state aid.
- Some colleges who really want a student will use their campus resources to fund the student while awaiting the papers to make the student eligible for public assistance.
- Sometimes an eligible relative can assume custody of the student. However, the student’s need may be calculated on the custodian’s income and assets.
- Occasionally, a letter from a member of Congress in support of the student’s case can help.
Do I have to accept student loans and work study in my financial aid award?
You don’t have to, but we recommend it. Loans and work/study are considered to be self-help aid. Students unwilling to help themselves may discover that colleges are less willing to help too – it is a character issue. Help yourself, and you might receive more help from the school in return.
Don Betterton, financial aid expert, gives college students advice about evaluating their financial aid award. He outlines the approaches you should take when dealing with merit-based aid versus need-based aid, and emphasizes the student’s responsibilities in the financial aid process.