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Deciphering Award Letters
December 19, 2019
As award letters start to stream in from the colleges you hope to attend, you may notice they are all different. Watch this video to learn about the common components of award letters and how you should compare them. Congratulations – you're one step closer to the college of your dreams!
If you'd prefer to read, follow along with the video using the transcript provided below.
Transcript: Hi there! We know getting into college can be tough, but figuring out how you’ll pay for it shouldn’t be. We want your journey from acceptance to graduation to be as painless as possible.
An important step in the process is receiving your financial aid award letter. This is when you find out what scholarships, grants and other awards you’re eligible for. This is also when you’ll learn how much of your financial aid package is made up of loans you’ll have to repay.
It’s important to be familiar with key terms you’re likely to see on your award letter.
We’ll begin with your Cost of Attendance, or COA. This is your sticker price for one full year of college. This amount is made up of: tuition and fees, room and board, books and supplies, transportation and personal expenses.
Another important term is Expected Family Contribution, or EFC. This is the amount the government expects a student’s family to pay toward one year of college. This is a baseline number schools use to calculate how much financial aid to offer.
Next is Gift Aid. This is made up of your grants and scholarships. This is free money your school is giving you just for being you. Neither have to be repaid. Grants are need based funds, while scholarships are based on merit – like your GPA or extracurriculars.
Many of you will be eligible for Work Study. This is funding that comes from a campus job and is considered part of the way you’ll pay for college.
Finally, we come to Loans. For many students, loans are an integral part of paying for college. Though they’re essential, it’s important to take out only what you need. There are generally three different types of loans you’ll see on your award letter: Federal Direct Subsidized Loans, Federal Direct Unsubsidized Loans and Federal Direct Parent PLUS Loans.
All three types of loans accrue interest. The difference between subsidized and unsubsidized is in how the interest is handled while the student is in school.
- For Subsidized Loans, the government pays interest that accrues on loans while the student is in school, enrolled at least half time.
- For Unsubsidized Loans, the student is responsible for paying any interest that accrues while in school.
Federal Direct Parent PLUS Loans are made to a parent borrower rather than directly to the student. They can help pay for education expenses not covered by other financial aid. Interest rates on these loans are typically much higher than the interest rates on loans made to students, and there is a 4% origination fee.
All of these elements make up your Award Total.
Your Out of Pocket Expense is the expense you’ll incur after subtracting scholarships and grants from your cost of attendance.
Now that we’re more familiar with Award Letters, let’s take a look at an example.
We see Grants and Scholarships listed first. Our student has received two grants totaling $3,800 and two scholarships worth $8,900. Her total gift aid is $12,700, or $6,350 per semester.
She’s also eligible for $1,200 in Work Study per semester.
Next, we see she’s qualified for $8,400 in loans per semester or $16,800 per year. She’s been offered Federal Direct Subsidized and Unsubsidized Loans, as well as a Federal Direct Parent PLUS Loan.
This brings her total financial aid award offer to $31,900 for the year.
Now that our student knows how much aid she’s eligible for, it’s important that she knows her total Cost of Attendance. Often, schools will only list tuition and room and board on award letters. It’s up to our student to factor in additional costs.
To get a more accurate Cost of Attendance, she’s added $5,500 to cover books and supplies, transportation and personal costs. This increases her total Cost of Attendance from $31,900 to $37,400. Now that she knows her true Cost of Attendance, she can calculate her Out of Pocket Expense. She’ll subtract her Scholarship and Grant total from her True Cost of Attendance to find she has an Out of Pocket Expense of $24,700.
From here, she and her family will have to decide how they’d like to pay for the remaining cost of school. Their options include Cash Flow – paid from current income, Funds from Savings or Investments, or Funds Paid for with loans – this could be loans already offered in your award letter, or other outside loans such as private loans, personal loans, or even home equity loans.
When comparing schools, you want to minimize your out of pocket expenses.
Even though we’ve deciphered this award letter, it’s important to remember that each letter is different. If you have questions, be sure to talk to your school’s financial aid office.
Before accepting your award, here are a few things to consider: how are your grants or scholarships renewed? Whose name is on your loans? And, what are the terms and fees associated with your loans?
Preparing and planning for college can be tough, but figuring out your financial aid award letter doesn’t have to be. Need a little more assistance? Our college planners can walk you through the process step-by-step – just email firstname.lastname@example.org. For more information on planning and paying for college, visit ThriventStudentResources.com.