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Is this a good financial aid award?

(MoneyWatch) I recently saw a copy of a financial aid letter from George Washington University that was worth $46,100.

At first glance that looked like a generous award. But was it?

That's the kind of question that puzzles millions of families every year. Financial aid awards are notoriously hard to decipher and I can appreciate why. If parents can't understand what's in a financial aid package, they are less likely to conclude that an award is lousy.

To illustrate what families are up against, I'm going to look more closely at the GWU award letter. What's missing in a letter can be just as important as what's included. For instance, the GWU award doesn't share the institution's cost of attendance. The cost of this school is $58,690.

When you look at the GWU award, it's hard to determine what constitutes grants and scholarships and what are loans.

The school included federal Stafford Loans in the student's package, but it didn't identify the Staffords as loans. I can see how families would easily mistake this loan for a grant or scholarship, which doesn't have to be repaid. The amount of this student's Staffords was $7,500.

The award also didn't include what the family's contribution should be based on the financial aid formula. In this case, the parents had a modest income and their expected family contribution was a mere $4,100. This family required a large amount of assistance - up to $54,590. I got that figure by subtracting the $4,100 figure from the school's $58,690 cost of attendance.

In reality, the family received $34,000 in grants, which made this a poor financial aid offer.

Deciphering a financial aid award

When you are evaluating a financial aid letter, look for these five things:

Cost of attendance. This should include such expenses as tuition and fees, room/board, books and travel. Ideally the cost of attendance will be itemized.

Scholarships and grants. This is the most valuable part of a financial aid package because it is free money.

Type and amount of loans. The loans should include interest rates.

Net price. What a family must pay after grants and scholarships are deducted.

Parent-and-child contributions. As mentioned earlier, these figures will be generated by the financial aid form that a family, looking for need-based aid, will be required to file.

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