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5 steps for evaluating a financial aid letter

(MoneyWatch) High school seniors across the country have been receiving their financial aid awards, and it's a sure bet that many of them are confused. 

Financial aid awards frequently leave families stumped. That's by design, because obfuscation benefits colleges and universities. If parents and students can't decipher a financial aid letter, or don't know how to detect what's missing in an award, they are less likely to know when they've received a lousy offer.

Here are five criteria for deciphering and evaluating a financial aid offer.

1. Look for any grants and scholarships in the package first. This is free money, so it's obviously more valuable than loans. This money can come from the federal and state governments and from the schools themselves.

Some of the funds can be need-based, while merit scholarships are awarded without regard to a family's financial ability. The most common need-based award is the federal Pell Grant, which is reserved for low- and middle-income students.

2. Look for the cost of attendance. This is what the school will cost your child for one year. This figure should include not only tuition and room and board, but also the cost of travel, books and personal expenses. Some schools try to make their cost of attendance look smaller than it is by eliminating certain line items. Worse, some institutions do not include any costs, including tuition and fees, in their award letters!

When you are comparing different awards, only subtract the scholarships and grants from the cost of attendance of each institution. That will be what you will have to cover through your savings or college loans.

3. Locate your Expected Family Contribution. You won't be able to determine if the award is a good one unless you know what your Expected Family Contribution, or EFC, is. This is the amount of money, expressed in a dollar figure, that a family is supposed to be able to afford to pay for one year of school.

The EFC is generated when parents complete the Free Application for Federal Student Aid, or FAFSA. The EFC  can be different if the family must fill out an additional financial aid form -- CSS/Financial Aid PROFILE -- that roughly 250 mostly private schools use.

If the FAFSA or the PROFILE EFC figure is not on the financial aid form, ask the school for this number.

4. Don't be fooled by loans. Colleges routinely put loans in packages to make them look like better deals. The only ones that legitimately should be in the packages are Perkins Loans and subsidized Stafford Loans, which offer more attractive rates for needy families.

5. Consider appealing. If a financial aid package is inadequate, it is possible to negotiate for a better financial aid package. There is no guarantee that this will work, but your chances are better if the school really wants your child.