Understand Your Financial Aid Letter
As early as March, college-bound students will start receiving financial aid award letters to colleges where they’ve been accepted. These letters outline aid packages — which are usually broken down into a combination of loans, scholarships, grants and work-study.
Upon first review, it may seem as though the majority of college costs are covered, but students or parents may have a remaining balance they need to pay after student loans. On top of that, financial aid award letters aren’t standardized; each school has their own format.
Here are several common terms and awards often included in these letters.
1. Expected Family Contribution
Expected family contribution, or EFC, is the minimum amount colleges expect a student or parent to pay. The federal EFC that a family receives from submitting the Free Application for Federal Student Aid — commonly known as the FAFSA — is only for need-based grants and loans from the federal financial aid program. Work-study is also determined based on this calculation.
Many schools have their own methodology for calculating EFC when it comes to distributing their institutional aid.
2. Cost of Attendance
Cost of attendance is the amount a school charges in tuition and fees as well as estimated school-related expenses, such as room and board, food, transportation and supplies, to name just a few.
Brad Barnett, senior associate director of financial aid and scholarships at James Madison University, told U.S. News in 2017 that parents and students should determine what are direct costs. Living costs, for example, may vary among students.
3. Net Cost
Net cost, sometimes referred to as net price, is found by subtracting grants and scholarships from the total cost of attendance.
Experts say when a family figures out the net price, they’ve arrived at the true cost of attendance. From here, families and students will need to develop a strategy on how to pay the balance, whether through savings, loans, tuition installment plans or other financial means.
4. Gift Aid
Gift aid is money that doesn’t have to be paid back — it can be awarded as a grant, waiver or scholarship. Colleges usually offer grants as need-based aid and scholarships as merit-based aid. Federal grants can vary from school to school depending on how each college chooses to administer the award.
Financial aid experts also say grants are less predictable, since they can fluctuate each year based on the family’s financial need.
5. Federal Pell Grant
The Pell Grant is the largest federal grant program available to undergraduates from low-income households. To qualify, a student must demonstrate financial need through the FAFSA.
The grant size depends on a number of variables, including family size and income. Many students don’t qualify for the full amount — currently $5,920. According to the Department of Education’s data for Pell Grants disbursed in the 2015-2016 academic year, the average award given was $3,740.
6. Federal Work-Study
More than 3,400 colleges and universities participate in federal work-study; this award may appear in a letter at one of these institutions.
Students who eligible qualify by demonstrating financial need on their FAFSA. Participants earn at least the federal minimum wage — currently $7.25 — in jobs that are usually on campus and funded by the federal government and universities. Under the program, students are limited to working a maximum of 20 hours a week.
7. Subsidized Stafford Loan
There are two types of Stafford loans that may appear on an award letter: subsidized and unsubsidized. With the subsidized Stafford, the government pays the interest while the student is enrolled at least half time.
A first-year undergraduate student can typically borrow up to $3,500 in subsidized loans compared with $5,500 for unsubsidized loans. The subsidized loan limit for an undergraduate is $23,000.
8. Unsubsidized Stafford Loan
Annual loan limits are typically higher than subsidized loan limits. The undergraduate loan limit for the unsubsidized Stafford: $31,000.
The difference between the two loans: the government doesn’t pay accumulating interest while the student is in school. Some institutions, such as Duke University in North Carolina, even exclude unsubsidized loans from their aid packages.
9. Federal Supplemental Education Opportunity Grant
This program, known as SEOG, provides need-based grants to low-income undergraduate students.
The maximum grant is $4,000 a year, but the award amounts are at the college’s discretion. At Minnesota State University–Mankato, for instance, SEOGs typically range from $100 to $800.
10. State Scholarships
Each state has its own process for distributing these awards, but usually the only requirement is filling out the FAFSA.
Financial aid experts say these awards generally only appear on aid packages for students who are attending a school in their home state. In Maryland, for example, needy students can receive up to around $18,000 annually through the state’s Howard P. Rawling’s Guaranteed Access Grant program. But they can only use the award in state.
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10 Things to Know When Reading Your Financial Aid Letter originally appeared on usnews.com
