You may have thought your student aid offer letter would answer your one burning question: How much does this school cost? But, as you may have noticed, many schools don’t include the cost of tuition in their student aid offer letters.
On top of that, your financial aid allocations can be ... confusing. Can you imagine buying anything else in life without knowing the price, or what kind of discount you might be receiving? Probably not.
So how do you figure out what a specific college will actually cost you? There are four components you need to consider:
Yearly costs, such as tuition, fees, books, room and board, travel expenses, etc.
Financial aid you don't have to pay back, such as scholarships, grants, and work-study
Financial aid that you do need to pay back, such as as federal loans
What's left after accounting for the above three items. That's the amount you'll need to pay out of pocket — or pay with private student loans. (This is also called the "tuition gap.")
Now that we have a basic idea of what we're looking for, the best way to figure out how to read a student aid offer letter is to actually read one.
Let’s take a look at five examples.
This letter is unusual because it provides a lot of details, allowing us to draw a fairly comprehensive picture of what this school will cost.
We can see the estimated cost of attendance (COA) is $38,400, including tuition and fees, room and board, books, travel, and personal expenses. This school has done quite a bit of work for us by providing all of these numbers right on the offer letter.
The award package lists total aid as $28,400. But keep in mind that number is a mixture of gift aid and loans. We'll need to break those down. This student has been offered:
$17,900 in grants and scholarships
$3,000 in federal work study
$7,500 per year in federal student loans
Before we crunch any more numbers, there are a few things to remember.
The first is that gift aid, such as grants and scholarships, may not be offered every year. For example, Perkins Loans are need-dependent. If this student's financial situation changes, he or she may lose eligibility for the grant. Similarly, some scholarships are a one-shot deal and may not automatically renew from year to year.
The second thing to know is that work-study is not guaranteed. It's often up to the student to seek out on-campus work-study employment — and there may not be enough jobs for everyone who qualifies. Plus, the funds from work-study aren't allocated up front — like any job, you have to earn the money before it's paid. That means work-study compensation won't help pay off expenses that come at the start of a semester, like tuition or books.
So how do things shake out for this student? Assuming the student will receive the same amount of aid every year, and that work-study is available, this student's college funding picture looks like this:
Yearly cost of $38,400 for freshman year (which includes the one-time cost of purchasing a computer) and $36,900 for subsequent years.
Financial aid that doesn't need to be paid back: $20,900 per year.
Financial aid that does need to be paid back: $7,500 per year.
Costs not covered by gift aid or federal student loans: $10,000 for freshman year, and $8,500 for subsequent years. This amount will need to be paid out of pocket, with private student loans, or with other funding sources.
Our next example offer letter breaks expenses into direct and indirect costs.
Direct costs of tuition and housing are estimated at $45,000, leaving a remaining $2,500 for indirect costs, which includes books, supplies, transportation, and personal expenses.
To get the total cost of attendance, we'll need to include everything, giving us a COA of $47,500.
Unlike the last example, this school separates gift aid from loans or, to use their words, "self-help options." Under the title Estimated Costs Minus Gift Aid, the family’s expected financial contribution is estimated to be $13,500 when including indirect costs. If they take advantage of the loans/self-help options for $9,300, they'll still need an additional $4,200 each year that will either need to be paid directly or through a private student loan.
One thing to note is the University Grant which, at $16,000 for the year, is a sizable chunk of the aid offered. If this grant isn't available every year, that’s a lot of extra financial responsibility for the family to take on. It would be a good idea to talk to the financial aid department at this school to determine eligibility for future years.
And, like the previous school, this student must maintain good grades, the family’s income level can't jump dramatically, and there must be work-study positions available to get the same amount of aid every year.
So where does that leave this student overall?
Yearly cost: $47,500.
Financial aid that doesn't need to be paid back: $35,800 per year.
Financial aid that does need to be paid back: $7,500 per year.
Costs not covered by gift aid, student loans, or work-study: $4,200. This amount will need to be paid out of pocket, with private student loans, or with other funding sources.
In this example, the school has listed a very simplistic view of the financial picture.
For cost of attendance, the school has listed a direct cost of $34,500, which includes tuition and fees. This doesn't include books, transportation, personal costs, or housing and meals.
It isn't possible to calculate a true cost of attendance without ballpark figures to use for these items.
Remember, living situations and costs can vary widely from school to school, so it’s important to contact the school to get their estimates for either on- or off-campus housing costs rather than trying to guess on your own.
This offer letter also uses unclear abbreviations, which makes it harder to distinguish between gift aid and loans.
This student was not offered scholarships, so the only gift aid listed is grants. There are two need-based federal grants, the SEOG and the Pell Grant, as well as a school-offered grant, totaling about $9,000.
Like the other offer letters, it’s important to clarify with the school if these grants will be available every year or just for the first year.
The rest of the aid listed is all loans, as abbreviated with "L." or "Staff" (for Stafford Loans).
The first loan listed is a Perkins loan, listed as Perkins L., for $2,000.
The listings for Fed Sub and Unsub Staff are the subsidized and unsubsidized loan amounts the student is eligible to take out in federal Stafford loans through the Direct loans program for a total of $5,500.
Lastly, the school has also listed $12,200 in Parent PLUS loans for a parent borrower for a total loan offering of $19,700.
At the bottom, the offer letter lists the estimated net cost at $5,800 for the year. In reality, the estimated costs are likely thousands of dollars more once housing, books, and other costs are factored in.
While the school lists $28,700 in offered aid, only $9,000 of that is actual gift aid. The rest is still the family’s responsibility to pay in the form of future loan payments.
The yearly cost for this school is unclear. The family will need to get estimates for room and board, books, travel, and other costs and add those to the $34,500 in direct costs to find the total cost of attendance.
Financial aid that doesn't need to be paid back: $9,000 per year in grants.
Financial aid that does need to be paid back in the form of student and parent loans: $19,700 per year.
Costs not covered by grants and loans: $5,800 plus costs for housing, food, supplies, travel, and other needs.
In this example, we have no estimate for costs whatsoever. Without this, it's difficult to put the amount of aid offered in perspective and figure out what would be owed.
The family will either have to do some digging on the school's website to find a cost estimate for the upcoming school year or contact the school directly to get those numbers.
The school lists six total financial aid awards: two loans, a scholarship, work-study, and two grants.
The first two items listed are the standard student loans that most students are eligible to take out. Because they must be repaid, they don't subtract from the student's financial responsibility, so we can separate those from the other aid.
What's left is a scholarship, listed as Honors Program Sch, for $500; a work-study position for $1,000; a federal Pell grant for $1,085; and a state grant estimated at $1,368.
Because the work-study money is paid throughout the semester, this student shouldn't depend on it to satisfy the bill at the beginning of the semester.
It's also important to note the state grant is an estimated amount. That means the student needs to be prepared for the grant to be more or less than the estimated figure once all is said and done.
So what did we find out from this offer letter?
The yearly cost is unclear. We have no idea what the total cost of attendance is just by looking at the offer letter. More research is needed.
Financial aid that doesn't need to be paid back: $3,953 per year between the scholarship, two grants, and work-study.
Financial aid that does need to be paid back: $2,750 per year.
Costs not covered by gift aid, loans, or work-study: unclear. This family will need to get the cost of attendance before that number can be calculated.
In this example, like the previous school, no cost estimate is provided, so the family will need to find that data before they can know whether the aid package is a good deal.
This offer letter lists the yearly total aid offered at the top and then breaks it down by semester.
The same six types of aid offered in the previous offer letter are offered again on this letter — two federal student loans, two grants, a scholarship, and a work-study position.
That leaves us with:
An unknown cost of attendance. The family will need to get estimates before they can know how attractive this award package really is.
Financial aid that doesn't need to be paid back: $9,510 per year.
Financial aid that does need to be paid back or earned: $9,000
Costs not covered by grants and loans: unclear. Again, this family will need to get numbers for direct and indirect costs before this can be calculated.
Final thoughts on understanding your offer letter
Overall, when comparing the costs of the individual schools by their offer letters, be smart and read beyond the bottom line. Know each school's individual calculations for direct and indirect costs, as well as what your child will need to attend.
Also, make sure you have a viable contingency plan if some forms of aid aren’t available for your child in future school years.
Wading through offer letters and calculating costs certainly isn’t glamorous work, but putting in that effort can save you unpleansant surprises in the form of thousands of dollars in student loans payments down the line.
And don't forget to check out our NitroScore tool to compare tuition rates for different schools and help you to calculate your true financial aid needs for your colleges of choice.
Carol Katarsky is a contributing writer for Nitro. She is an award-winning journalist with extensive experience writing about both finance and education. Her corporate and non-profit clients include AIG, Children's Hospital of Philadelphia, and the Project Management Institute. She lives in Philadelphia with her husband, son, and one cat more than she should. Read more by Carol Katarsky