Here’s how to break down your college financial aid award letter
Going to college is one thing. Determining how to pay for it is another.
The price has become a growing consideration among students and parents. Now, financial concerns rule decision-making for nearly 8 in 10 families, according to education lender Sallie Mae, even trumping academics when choosing a school.
At the same time, most students and their parents pay only a fraction of the total grade, even as university fees continue to rise.
In addition to income and savings, more than 8 in 10 families use scholarships and grants – money that does not have to be repaid – to help cover costs. More than half of families borrow, with parents and students taking out loans, Sallie Mae found. (See Sallie Mae’s painting below.)
This is why so much depends on the financial aid award letter. However, it can be difficult to understand what this missive means to your bottom line.
To get a better idea of what you’ll pay out of pocket for higher education, here are the dos and don’ts of deciphering university aid.
For starters, while it may seem obvious, some schools simply cost more than others. Therefore, what may sound like the biggest deal may not be the best.
“A school can give you $ 5,000 more in grants, but the cost could be $ 8,000 more,” said Kalman Chany, a financial aid counselor and author of Princeton Review’s “Paying for College”.
Also, not all colleges include both direct and indirect expenses in the total “cost of attendance,” or COA, said Jennifer Satalino, a financial aid expert with Educational Credit Management Corp., a non-profit organization dedicated to helping student borrowers.
While most schools describe tuition and basic fees, some may not include “indirect expenses” such as books, meals, and transportation. For each school, list all costs, including personal expenses, Satalino said, before deducting any grants or scholarships. (This worksheet can help you.)
“You have to watch the net net,” Chany said.
In most award letters, there are often several financial aid options, including grants, scholarships, work-study opportunities, and student loans.
If you find it hard to tell the difference between a donation and a loan that needs to be repaid, look for terms such as “grant”, “scholarship” and “fellowship”. Everything else is most likely a loan, Satalino said.
“If you have questions, ask them, don’t make assumptions,” she added.
Even with a gift aid, there may be conditions, such as whether a grant is renewable for four years or a minimum cumulative grade point average that must be maintained. A school that seems more generous at the start might offer less funding later, Chany said.
If student loans are listed, they seem to reduce the total cost of participation. But the reality is that loans still have to be repaid, plus interest.
Studies show that more than half of millennials take out student loans without knowing the interest rate or the amount of their monthly payments.
Before borrowing a dime, check to see if the financial aid offer includes direct loans, which are need-based and interest-free while a student is in school, or unsubsidized loans, which bear interest from the start. departure. “The subsidized is always better,” Chany said.
Yet beyond the distinction between subsidized and unsubsidized loans, letters of award rarely provide information on interest rates and repayment options.
If you need loans to pay for your education, Satalino advises you to know the full cost of your options, and then only borrow what is absolutely necessary.
To this end, schools often offer more financial assistance than you might need.
As a rule of thumb, “don’t borrow more than what you estimate to be your first-year income” after you graduate, Satalino said.
A lot of people make the mistake of borrowing too much and using student loans to pay for all of their expenses, and then have a hard time paying off what they owe, she warned.
“Only take the amount of financial aid needed to complete your college education,” Satalino said.