6 tips for deciphering a financial aid letter

For high school seniors, the agonizing college admission process is almost over. All that's left for many students is deciding which college they can afford.

Answering this question, however, isn't as easy as it might seem because it requires deciphering financial aid letters. Unfortunately, many colleges and universities send out financial aid letters that are difficult to understand.

So, here are six tips to help you make sense of any financial aid award.

1. Know what should be in every financial aid award.

Award letters should reflect the full cost of attendance. A financial aid letter should include tuition, room/board, textbooks, travel and miscellaneous expenses. The cost of the school, minus any grants/scholarships, will generate your net cost.

"For purposes of comparison, it is important to see how much grant assistance you are being offered and what the net price is," advised Joseph Bagnoli Jr., dean of admission and financial aid at Grinnell College in Iowa.

2. Check for this key figure.

Sometimes what a school fails to include in a financial aid letter creates problems for families.

Few award letters, for instance, include an extremely important figure: the Expected Family Contribution (EFC). This dollar figure tells a family what the financial aid formula has determined the household should be able to pay for one year of college. Without this critical figure in the award letter, it would be impossible to know if a student's package is a good one or not.

For example, let's suppose a family's EFC is $20,000, but the school's cost is $55,000. Ideally, the student would get $35,000 in financial assistance to bridge this gap, and most of that would be in the form of grants and scholarships.

In this hypothetical case, however, the student only received a $10,000 merit award and a federal loan. The $10,000 award wouldn't make a significant dent in the family's demonstrated need for $35,000 in assistance. Without knowing their EFC, the parent and students may not understand that this is a poor award.

If the school does not include the EFC on the award letter, contact the financial aid office and ask what this figure is.

3. Make sure loans are clearly marked.

Some schools' award letters make it difficult to differentiate between loans and grants/scholarships. I've seen letters where the federal student loan has been referred to as "a Stafford" rather than "a federal Stafford Loan." Inserting loans in a package without properly identifying them will make a school look less expensive than it really is.

4. Check out the federal Shopping Sheet.

In an attempt to end the confusion, the federal government created a model financial aid letter called a Shopping Sheet. This model letter clearly identifies what the net price of college would be to a family by providing the cost after deducting scholarships/grants. In contrast, many schools will provide a bottom-line price after subtracting loans. Schools must voluntarily sign up for the Shopping Sheet. Still, seeing what a model financial aid letter looks like can help.

5. Use the College Abacus tool.

College Abacus, a free website that helps families find the net price of schools, offers a financial aid comparison tool. You can take any financial aid letters and plug in the necessary figures to generate a crystal-clear comparison sheet of different awards. You must register to use the tool.

6. Ask questions.

If the financial aid award remains confusing, call the school's financial aid office and stay on the line until you understand. Too much is at stake to just guess.