Guide to Financial Aid Award Letters
After you submit your application for financial aid, you will receive a financial aid award letter from the college(s) to which you applied, typically in early to mid-April. This letter spells out the details of your financial aid package.
A financial aid package is a collection of different types of financial aid from multiple sources. It is intended to help you fill the gap between your ability to pay (your expected family contribution or EFC) and college costs (the cost of attendance or COA). It is based on your financial need, the difference between COA and EFC.
Problems with Award Letters
There is no standard format for award letters, making them difficult to interpret and to compare and contrast. Some common problems include:
If you win any outside scholarships, you have to tell the college about them. Unfortunately, federal regulations require the college to reduce your need-based aid package when you win an outside scholarship or other 'resource'. Colleges do, however, have some flexibility in how they reduce your financial aid package. Many will use the outside scholarship to first fill any gap, and then use half the funds to reduce loans and half to reduce grants. Ask the college for information about it's outside scholarship policy if this will affect you.
Evaluating an Award Letter
The quick reference guide on evaluating financial aid award letters provides six pages of information and advice about understanding and comparing financial aid award letters. It includes a discussion of net cost and out-of-pocket cost, a summary of problems and pitfalls with financial aid award letters, a list of questions to ask college financial aid administrators and a glossary of common terms used on financial aid award letters.
The first thing to do when you receive an award letter is to identify the major cost components at the school and the major components of the financial aid package. The cost figures should include tuition and fees, room and board, books and supplies, transportation and personal expenses. The financial aid package should include grants, work-study, and need-based loans. There may also be non-need-based loans. Total each category separately, so that you can compare the award letters from different colleges on an apples-to-apples basis.
Some educators suggest calculating the percentage gift aid (grants and work-study) in the financial aid package. FinAid does not agree with this advice, as such percentages are at best an imprecise gauge of the factors that matter most to the family, namely how much the college is going to cost. For example, one college may offer a greater percentage grants, but still cost the family more because the total cost of attendance is greater.
FinAid recommends looking at two figures that provide meaningful information about the cost of the college: net cost and out-of-pocket cost:
Resources for Students and Parents
There are several tools available to help you decode your financial aid award letter. FinAid offers two award letter comparison tools.
The FastWeb College Gold book about paying for college includes a chapter about decoding the financial aid award letters, with detailed analysis of two example letters.
The web site FinancialAidLetter.com provides examples of award letters and tools to help decode them. The site was launched by Kim Clark, a senior writer for US News & World Report.
See also Mark Kantrowitz, Standardize Financial Aid Award Letters, Inside Higher Ed, June 22, 2007.
See Survey Concerning the Standardization of Financial Aid Award Letters for the results of a survey in late 2010 about the need to standardize financial aid award letters.
See also recommendation #2 in Helping Families Finance College: Improved Student Loan Disclosures and Counseling, Consumers Union, July 2007.
See also Proposal for Standardization of Financial Aid Award Letters and Net Price Calculators (4-page summary). This 37-page written report was the basis for oral testimony by Mark Kantrowitz before a hearing of the Advisory Committee on Student Financial Assistance (ACSFA) on March 17, 2011.
See also The Need for Standardized and Required Disclosures Concerning College Costs and Financial Aid, (one-page summary, draft model financial aid award letter). This was the basis for testimony presented by Mark Kantrowitz at the U.S. Department of Education Public Meeting on Recommendations for Improvement of Student Financial Aid Offer Forms and Development of Model Financial Aid Offer Forms on September 13, 2011.
See also ACSFA's report, The Bottom Line: Ensuring that Students and Parents Understand the Net Price of College, June 2011.
The US Department of Education and Consumer Financial Proection Bureau released a draft "financial aid shopping sheet" as part of the Know Before You Owe: Student Loans project in October 2011. A summary of more than 20,000 comments on the project was published in January 2012. The final version of the financial aid shopping sheet was released on July 24, 2012.
Senator Al Franken introduced the Understanding the True Cost of College Act (S.3244) on Thursday, May 24, 2012 with bipartisan support. This legislation establishes a mandatory standard for financial aid award letters. See Senator Al Franken Introduces Legislation to Standardize Financial Aid Award Letters for an overview of the legislation.
On April 27, 2012, President Obama signed executive order 13607 to require colleges and universities that receive funding from Federal military and veterans educational benefits programs (including the Post-9/11 GI Bill and the Tuition Assistance Program) to provide prospective students who are eligible for these benefits with a personalized and standardized form "to help those prospective students understand the total cost of the educational program, including tuition and fees; the amount of that cost that will be covered by Federal educational benefits; the type and amount of financial aid they may qualify for; their estimated student loan debt upon graduation; information about student outcomes; and other information to facilitate comparison of aid packages offered by different educational institutions." The US Department of Education published Dear Colleage Letter GEN-12-10 and Executive Order 13607 Principles of Excellence Q&A which indicate that the standardized form is the "know before you owe" model financial aid offer form as developed by the US Department of Education and the Consumer Financial Protection Bureau.
Resources for Educators
The National Association of Student Financial Aid Administrators (NASFAA) published an Award Letter Evaluation Tool in 2001 to help colleges make their financial aid award letters more intelligible. A March 2005 article entitled Recommended Elements of Award Letters by Mark Kantrowitz in Emerging Issues in Higher Education, a publication of the Council on Law in Higher Education, also discusses best practices in the design of financial aid award letters.
The Higher Education Opportunity Act of 2008 (P.L. 110-315), which passed the House and Senate on July 31, 2008 includes a requirement for the US Department of Education to develop a model institution financial aid offer form. The text of the legislation is as follows:
SEC. 484. MODEL INSTITUTION FINANCIAL AID OFFER FORM. (a) MODEL FORMAT. -- The Secretary of Education shall -- (1) not later than six months after the date of enactment of the Higher Education Opportunity Act, convene a group of students, families of students, secondary school guidance counselors, representatives of institutions of higher education (including financial aid administrators, registrars, and business officers), and nonprofit consumer groups for the purpose of offering recommendations for improvements that -- (A) can be made to financial aid offer forms; and (B) include the information described in subsection (b); (2) develop a model format for financial aid offer forms based on the recommendations of the group; and (3) not later than one year after the date of enactment of the Higher Education Opportunity Act -- (A) submit recommendations to the authorizing committees (as defined in section 103 of the Higher Education Act of 1965 (20 U.S.C. 1003); and (B) make the recommendations and model format widely available. (b) CONTENTS. -- The recommendations developed under subsection (a) for model financial aid offer forms shall include, in a consumer-friendly manner that is simple and understandable, the following: (1) Information on the student's cost of attendance, including the following: (A) Tuition and fees. (B) Room and board costs. (C) Books and supplies. (D) Transportation. (2) The amount of financial aid that the student does not have to repay, such as scholarships, grants, and work-study assistance, offered to the student for such year, and the conditions of such financial aid. (3) The types and amounts of loans under part B, D, or E of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq., 1087a et seq., 1087aa et seq.) for which the student is eligible for such year, and the applicable terms and conditions of such loans. (4) The net amount that the student, or the student.s family on behalf of the student, will have to pay for the student to attend the institution for such year, equal to -- (A) the cost of attendance for the student for such year; minus (B) the amount of financial aid described in paragraphs (2) and (3) that is offered in the financial aid offer form. (5) Where a student or the student.s family can seek additional information regarding the financial aid offered. (6) Any other information the Secretary of Education determines necessary so that students and parents can make informed student loan borrowing decisions.
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