Too often, students applying to colleges and universities mistake tuition for the actual cost of attendance.
The college award letter is the best way to see the significant difference.
In addition to estimating the cost of campus life – from tuition and transportation to room and board and books – the award letter takes into account potential funding sources to estimate the affordability of your education at a specific school.
If you haven't seen a college financial aid award letter, here is the Consumer Financial Protection Bureau's prototype. We'll use its three core sections below to explain how to parse through the letter itself.
In the course of unsealing envelopes, you may find that some colleges were more or less expensive than originally met the eye.
The college award letter can help you understand, for example, if a college that charges $15,000 in tuition may actually be more affordable than one that calls for $12,000 by detailing the financial aid package each offers. (The College Board and the CFPB both have easy-to-use tools for making direct school-to-school comparisons; they allow you to input the data from multiple award letters to see a juxtaposition.)
No matter your preferred college, the award letter also identifies your shortfall – that is, the amount of money you'll need to attend that can't obviously be covered through grants and scholarships.
If you've read this far, you've likely already communicated with your preferred schools about financing your education. Perhaps, you've even received your award letter. While not all college award letters are created equal, learning how to read one will allow you to understand each one that comes into your mailbox.
Here's how to make sense of it.
The actual cost of full-time attendance
The total cost of attendance, of course, goes way beyond tuition. It will include the price tags for living and eating on campus, books and supplies for your classes and other incidentals.
The other big term to know before we move on is the estimated family contribution (EFC). The CFPB doesn't list it here, but you should find it alongside the actual cost of attendance on your letter.
In fact, the EFC is the first item to subtract from your cost, as it's an estimate of how much you and your family should be able to pay toward the cost of your education. It's a dollar-and-cents amount that's based either on information you provided on your FAFSA or while applying to the school.
If your EFC seems burdensome, consult your school's financial aid office; their contact information should be listed on the letter. As they will say, your EFC does not necessarily represent out-of-pocket cost, you could fulfill it with a private loan.
That's assuming that you don't score enough.
Scholarships and grants
Unlike federal or private loans, these funding sources don't require paying money back in the future.
Scholarships and grants represent what's often called gift aid. They may be need- or merit-based and could be tied to specific conditions, such as maintaining a certain grade point average while enrolled.
Fortunately, it's more common than not to be a recipient of scholarships and grants. According to The College Board, about two-thirds of 2014-2015 full-time students received aid in the form of scholarships and grants, which can be awarded at the state, federal and school levels.
Be aware that outside scholarships "those awarded by an entity other than your school and the government” – may cut into your award package. Ask your financial aid office about these side effects, as each college and university tends to handle them differently.
Federal loans and work-study opportunities
There are various types of federal loans available to students looking to fund higher education costs. All come with fixed rates but are designed for different borrowers and for different purposes. As a result, you may not see every option listed on your award letter.
Here's an overview of each of the types of federal loans:
Direct Subsidized and Federal Perkins Loans are need-based awards and are subsidized, meaning that no interest accumulates while the student is enrolled. The Direct Subsidized loan is offered to students with especially wide gaps between their cost of attendance and estimated family contribution, and the Federal Perkins Loan is serviced by the college or university itself. As a result, the school will use its own criteria to determine if you meet the "exceptional need" requirement.
Direct Unsubsidized and Direct PLUS Loans are not need-based and do accrue interest while the student is enrolled. The latter loan is designed for parents of students to pay for expenses not covered by other forms of aid.
State Government Sponsored Loan Options vary on a state-by-state basis. Consult the Department of Education to wrangle public loan options specific to your home state.
As for work-study, a school may offer to pair you with an available part-time job on campus that can help you pay for expenses, such as housing and meal plans. The salary you receive through this job is actually subsidized by the federal government.
If you can identify a part-time position that also helps you further your major area of study or career, all the better. Just be sure that you'll have room around your course schedule to fit the additional hours of working.
What else to know about your college award letter
It's called an award letter for a reason. You are not mandated to accept what your school is proposing, particularly when it comes to taking out multiple loans that will last the length of your college tenure.
In fact, a school's financial aid office is built, in part, to field requests for clarification or for additional funds.
Along these lines, remember that everyone who has submitted a FAFSA application and been accepted to your school may not end up attending that school. So remember to check in with your school's financial services representative to ensure there are no declined funds or opportunities left on the cutting-room floor closer to the May 1 National College Decision Day deadline.
If you're in the common predicament of not being able to completely fulfill your actual cost of attendance with your estimated family contribution, scholarships and grants, federal loans and work-study options, taking out a private loan becomes a top option.
Unlike federal loans, private loans will likely require a creditworthy co-signer and come with a different set of terms, with the option to accept a variable interest rate.
No matter how many and what kind of loans you decide to take out, ensure that you understand how much debt you'll have upon graduation and how much you'll be expected to pay per month to erase it. Your college award letter should contain this information. If it doesn't, seek it out.
Keep in mind that even after you choose your school and even after you've decided which loans to accept you'll have to repeat this process all over again each year you're enrolled. So becoming an expert on managing your financial aid package as a freshman will still come in handy by the time you're a senior.