Financial Aid Award Letters: Comparing Different Colleges

In Paying for College on Apr 08, 2016

Reviewing your financial aid award letters is one of the most important parts of the college consideration process, so it's important to look them through thoroughly. However, they can be confusing - especially if you've never seen one before. Here are some tips on comparing your award letters.

Generally, if the net price at two colleges differs by less than $1,000, other factors will dominate the student’s choice of college. If the net price differs by $5,000 or more, most families will send their child to the college with the lower net price, since that will yield much less debt. In between, the student and parents will agonize over the decision, since it means a tradeoff between financial fit and academic, social and environmental fit.

Note that the college that offers the most gift aid isn’t necessarily the most affordable. Consider a college that charges $60,000 a year and offers $25,000 in grants. That may be a lot more grants than an in-state public college. But the net price of the $60,000 college is $35,000, which is more than the $25,000 cost of the public college even if you get no aid.

You should also compare the net price with your available resources to evaluate the affordability of each college. Resources include savings, contributions from income and education debt. (Total student loan debt should be less than your expected annual starting salary. If total debt is less than annual income, you should be able to repay your student loans in ten years or less.) If total resources are sufficient to pay for the total net price across all years of your college education, the college costs are affordable.

Another way to evaluate college affordability is to use the college affordability index, which is the ratio of the net price to total income. If the college affordability index is less than 25 percent, the college is affordable. If the college affordability index is 25 percent to 35 percent, paying for college will be a financial stretch, but doable. Anything more, however, is unaffordable.

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