How to Decipher Those Confusing College Financial Aid Letters

NEW YORK (MainStreet) — The average cost of attending a public university is about $28,000, and the average cost of a private university is $55,000. Consequently, every dollar squeezed out of financial aid, especially via scholarships, grants or loans, could be vital.

That's why it's good to be able to decipher college financial aid letters to maximize their value.

According to American Student Assistance, a nonprofit group that helps college students and their families gain financial help for school, there are four key tasks when getting an award letter: 

  • Know how much financial assistance you will need.
  • Know how to read an award letter.
  • Know the difference between the types of aid listed.
  • Know the difference between "free" aid (such as grants and scholarships) and what students have to pay back (i.e., student loans).
Here's some advice on getting the most value from a college aid offer:

Not every "estimate" is accurate. Look closely at what the letter actually says about "total aid" — there's more to that number than you think. "I have two kids in college now, and one more to go next fall, and a fourth in two years, so I am becoming a pro at the deciphering of college aid letters," says Jill Novak, a director of client transitioning at Human Investing, a Lake Oswego, Ore., financial services firm. "I've found the part of the aid letters that can be misleading or confusing as a parent [is the] total amount estimated of the cost for the year. Some of this is an estimate and not the actual cost, as the school is estimating books, housing and expenses."

What is the parent's responsibility? Novak also says it's vital to know the financial obligation of the school and aid organizations vs. the financial obligation of the parents. "That's always a priority for me when looking at an aid letter: What's my responsibility as a parent?" Novak says. She describes that figure as the amount outside of what financial aid will cover, and it isn't always easy to identify.

"When in doubt, I always pick up the phone and call the financial aid office at the school," she says. "They're the masters at deciphering financial figures and have always been very helpful and patient answering answer all my questions," both public and private schools.

Watch for curveballs. Thomas Delahunt, vice-president for admission and student financial planning at Drake University in Iowa, advises watching out for fuzzy math. "The words 'financial aid' don't necessarily mean 'free' money," he says. "It is not all a gift. Parents and students need to understand where the money is coming from and what strings are attached."

Delahunt also says to be aware of bait-and-switch awards. "Some schools frontload scholarships and grants and/or put unrealistic expectations on recipients regarding renewals, which turns the awards into one-year scholarships in the hope that once students are enrolled they won't want to transfer, even if they have to pay a higher price in subsequent years," he says.

Beware of hidden fees. Colleges love to stick families with fees. "So often schools have a fee schedule buried somewhere on their website," Delahunt says. "For example, families need to ask about 'cost of attendance' figures. If a school has a rather low cost-of-attendance number, it is probably estimating a bit low."

Lastly, college consumers need to walk away from an aid letter examination with a "big picture" understanding of their financial obligations. "Once a student has his or her financial aid award and understands all of the funding awarded, the next step is to determine how much it will cost to attend," says Karen Flynn, an associate vice president for financial aid at the University of New Haven. "The financial aid offered is likely to not cover the entire cost of the university, so families should begin with determining the direct costs of the school in order to know how much they will be expected to pay for the student to attend."

— Written by Brian O'Connell for MainStreet

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