5 pitfalls of college financial aid letters
College decision day is May 1, which means that students -- and their parents -- have less than two weeks to commit to an institution of higher learning. A major part of that is figuring out which college makes the best financial sense.
Unfortunately, the financial aid letters sent by colleges to accepted students aren't always clear, and it can be all too easy to make a financial misstep. While the U.S. Department of Education has developed a "financial aid shopping sheet" that aims to standardize the format of financial aid letters, not all colleges have adopted it. (The education department says 2,900 institutions are using it, which represents about 62 percent of degree-granting two- and four-year colleges.)
"The first thing you have to understand is that there will be variance" between colleges' financial aid letters, said Kevin Fudge, government relations and community affairs manager for the non-profit American Student Assistance, who describes himself as a "loan doctor practicing preventative medicine."
In evaluating the offers, Fudge said, "Treat it like a private good. It's a consumer purchase. You have to shift your mentality about 'How do I make the best decision.'"
The letters will spell out the cost of attendance, which should break out the cost of tuition, room and board and books and supplies (but sometimes don't include other costs, such as travel.) The letter will also include the expected family contribution, or EFC, which is broken down between what a student and their parents are expected to pay out of pocket.
Yet another section will detail the grants, scholarships and loans that have been given to the student or which they can apply for to pay for their attendance.
That might not sound too bad, but within that format can be a great deal of missing or confusing information. The details can be overwhelming and leave families missing the big financial picture.
Read on for five pitfalls to avoid when evaluating financial aid letters.
Skipping over what you can actually pay.Start the process by determining what your family or student can actually afford to pay, Fudge said. Ideally, this calculation should be made before reading the financial aid letter, because it will help students and their parents set limits. "When [families] do the calculation and they see the out-of-pocket cost, they can say, 'It's out of our range,' or, 'Do we want to borrow loans to make up the difference?'," Fudge said.
Losing sight of the four-year commitment. The financial aid letter details the costs and aid for just one year. That means whatever costs are detailed in the letter should be multiplied by four. Suddenly, that $10,000 loan ends up being much bigger -- and costlier -- than you might have imagined. Along those lines, families with more than one child should keep their future college costs in mind, Fudge said.
Failing to ask questions. Some financial aid letters will leave out some costs, such as the cost of a student's transportation between home and campus at the start and end of the school year. Other letters may be unclear about whether a scholarship or grant is a lump-sum payment, or whether it will renew every year for four years. Make sure to contact the school to ask for clarification if anything is unclear. Financial aid offices "are making an attempt to be more customer friendly," Fudge said.
Ignoring the Parent PLUS red flag. One major red flag is if a college includes Parent PLUS loans on the student's financial aid letter, Fudge said. That's because a Parent PLUS loan is a federal program that allows for unlimited borrowing for parents to pay for their kids' college educations. It's not truly financial aid, and can end up misleading a family about their total costs. "It's morally indefensible to put a PLUS loan in a financial aid letter," Fudge said.
Getting into a "locked in" mindset. First, remember that parents can ask financial aid offices to reevaluate their offer, which may be effective if the family has suffered a change of fortune, such as a job loss or a death of a parent. Secondly, be willing to walk away, Fudge said. "People have this at-all-costs mentality, but this is where people get into trouble," he said. While your student may want to go the college of their dreams, it's also important to set them up for a financially stable life in their 20s, he added.
Lastly, remember that students can transfer if the costs are too high. "When you are in a hole, stop digging," Fudge said. "People feel like it's a marriage, but you have no obligation to the school. I admire your loyalty, but it's okay to jump ship and go to a different school."