This is the time of year when parents are nervously evaluating student financial aid packages.
It doesn't help that financial aid letters can be confusing and, at times, intentionally so. Some colleges presenting a lousy student financial aid offer can try to hide it behind confusing abbreviations and missing information. Adding to the confusion, financial aid letters aren't standardized which make them hard to compare.
Don't be fooled. Here are five things you can do to decipher a college financial aid award.
Evaluating a Financial Aid Letter
1. Determine a school's real cost.Schools calculate what's officially called the cost of attendance differently. Some colleges might look cheaper on paper because they only include tuition and room and board as costs on a financial aid offer while other schools are more thorough and add transportation, books and more. An easy way to find a college's costs is to look at its profile on the College Board website.
2. Look for the free money.What matters to you is your out-of-pocket costs. You determine this by subtracting any grants or scholarships you receive from the school's cost of attendance. Grants could come from the federal and/or state government and from the college itself.
3. Don't be fooled by loans.Sometimes schools will try to trick a family by making it look like the financial aid package contains a lot more money by inserting loans that aren't clearly marked. A loan, for instance, might be abbreviated as "ln." If you have loans in your financial aid package -- and most students will -- find out what the interest rates and terms are, as well as monthly and total payments.
4. Ask how private scholarships are treated.When teenagers realize their financial aid packages aren't fat enough, they will often look for outside scholarships. Obtaining these private scholarships can sometimes back fire, as I've mentioned in a previous post:
If a teen wins a private scholarship, the college could shrink his or her financial aid package by the amount of the award. So if a child wins a $3,000 scholarship, the college could cut the aid package by $3,000. Why is a student penalized for winning a private scholarship? Federal rules require that a college consider outside scholarships when calculating a financial aid package. Ideally you'd want the college to reduce the loan portion of a student's financial aid award and not grant money. You need to ask schools about their policies.
5. Contact the school.If you are confused about a financial aid award call the school and get the answers that you need.
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