Understanding Your Financial Aid Package
So, your Financial Aid packages have started rolling in and you have no idea how to compare them or what exactly it all means. Take a deep, deep breath, you are not alone!
Reviewing and understanding your financial aid package can be a daunting task, even for those who have been through the process many times over. The main issue is that there is no standard financial aid package format that every school follows, so you may not even understand how the packages differ. The key is to understand what exactly is on your package and what each item means so you can compare apples to apples and oranges to oranges when looking at packages and COSTS from different schools.
Step one: Knowing what is on your package! Let’s unpack this for a minute:
Naturally, as each college uses a different format, this is going to look different on every award letter that you get. I want to review this carefully and then allow you to do your own calculations for each package on your own- a very important step in the process.
Costs. This is the total of tuition, fees, room and board and any other cost associated with attending a particular school. This will vary from school to school as no two school costs are the same.
Aid monies. This gets a little confusing because there are two (well, technically 3) types of aid money on your award letter.
Free money- This is the one type of funding you DO NOT have to pay back (these are grants* and scholarships). This is the BEST kind of aid because, as I said, you do not have to pay it back. *Very occasionally, you do need to repay grants if the money is tied to a certain outcome, but this is rare and you would know this upfront.*
Not free money- this second type you do have to pay back (this would be ANY loans that are listed on your package).
Work Study money- this last type is one that you need to work for while in college and you typically receive in the form of a bi-weekly paycheck. This is included on your package because as long as you want a job, you can get a job as it is federally funded and thus you are guaranteed the money. This type is usually best used to help offset personal expenses while you are attending school.
Step two: Figure out your out of pocket costs.
This is a fairly easy process, but I HIGHLY RECOMMEND doing it slightly differently than what many colleges will tell you.
My recommendation is to add up all of the free money you are getting (I do not include loans or work study in this and I’ll explain why shortly). Take the total cost (tuition, room and board, all fees, etc.) and then subtract your free money (cost - free money = total out of pocket cost). This gives you the balance. So far, this is pretty simple math, but is going to be a different number than what you see on your financial aid package.
This is why, every college adds up ALL of your aid monies (scholarships, grants, loans and work study) and then subtracts that from the cost. To me, this is a little misleading. I personally believe that you need to come up with the remaining balance in some way and loans and work study can be part of that, so I don’t include it in this early calculation. For me, your true, out of pocket cost is the cost minus the free money you are getting. You will later need to figure out how to cover any differences there may be, which can be done with loans.
Step three: Look at the out of pocket cost you just calculated for EACH school.
You are now able to compare apples to apples and oranges to oranges. If you’ve applied to only in-state public schools, your out of pocket costs will be pretty similar. If you’ve applied to a mix of in-state and out-of-state and public and private schools, your costs may still be pretty similar. A lot is going to depend on scholarships.
Let me do a sidebar here: most private colleges offer some type of academic scholarships to most (if not all) students, most public schools do not offer academic scholarships. There are always exceptions to every rule, but this is the general rule. This means that depending on your grades, it may actually be cheaper for you to attend a private institution than a public one. Just some food for thought.
Step four: Figuring out how to cover the remaining out of pocket cost.
Here is where more variables come in for each individual family. Most families do not have the means to write a check to cover the remaining cost of college for the next four years, so we need to consider where the remaining monies can come from. Below I’m going to list some of the main funding sources other students use to cover the remaining balance (this is not an exhaustive list nor am I suggesting one method over another, but these may be helpful if you are looking for ways to cover additional costs).
Loans- usually (but not always) federal student loans are the best option because in some cases your interest is deferred until 6 months after you graduate.
Federal student loans (both subsidized and unsubsidized)
Personal loans
Outside scholarships- there are lots and lots and lots of these that can be claimed and awarded. Look for them! Apply for them (on time)! These can make a huge difference in what you need to cover and the payout is more than any part time job you can get.
Work study- this is on your financial aid award package and can be used to help offset costs if you qualify. However, don’t count on this to help pay your tuition bill, it just won’t work out that way. You receive the money usually bi-weekly and your tuition is due at the beginning of the semester. Use these funds for transportation costs or other costs associated with college (like buying your own shampoo for the first time in your life).
Aid programs for military families- this is pretty specific so look into it if you qualify
Financial aid and covering the cost of college is a very personal business, though I highly recommend that you involve your child in the process, whether they are helping to pay for part of it, all of it or none of it. They need to know the reality of this. It is a great life lesson and teaching tool that will serve them well down the road.
Speaking of life lessons, Jared Menghini (Executive Director of Student Financial Services at Wilkes University) says that the best advice for students and parents when reviewing financial aid packages is to remember that Highest merit scholarship is not always because the school wants you more. Most schools use merit scholarship to attract students to apply for admission to their institution. These scholarships are center around everything students have done through their high school career. The scholarship tiers are usually decided based on the overall amount of tuition and fees. If one school is awarding you $20,000 and the other is offering $18,500 typically their tuition and fees would be very similar but the school that offered the $20,000 would be a higher cost.
Conversely, Mr. Menghini states the biggest mistake when review your financial aid offer is understand what “free money” is and what is not. Most schools have moved to the category wording on their financial aid offer as “gift aid” and “self- help”. “Gift aid” is grant and scholarships that do not need to be paid back. “Self-help” is typically loans were they are federal or institutional loans. One other entitlement that would fall under “self-help” is federal work study. Federal work study typically is calculated into the out-of-pocket cost on financial aid offers. However, federal work study is a pay as you work program. This is not free/guaranteed money unless you work for it. Depending on the institution federal work study can be added towards the students balance or the student can receive a paycheck for their work. I have seen schools use large amounts in federal work study to reduce the out-of-pocket cost and families made their decision based on that amount. It is very important to breakdown all the math and contact the schools financial aid counselor to walk you through their offer letter.
If you need assistance in planning for college financially there are a number of great institutions that can assist (I in no way endorse any specific one), and it could be a good option for you to consider their services. Financial aid offices are also a great resource, just remember that at the end of the day they want you to attend their institution. The best resource I can give you is free and is the source- the Federal Student Aid website.
I hope you’ve found this helpful. If you are looking for more information, please visit my website- Higher & Hire. If I can be of assistance to you, please reach out to me here.
Many Thanks!
Valerie Palmer
