Financial Aid Award Letters: Pitfalls to Avoid

In Paying for College on Apr 08, 2016

After you've received your financial aid award letters, you'll be surrounded by a lot of information, and this can be intimidating. Be careful to avoid these common pitfalls that could cost you and your parents more money in the long run.

The first thing to beware of is colleges including a net tuition or a net cost figure on their financial aid award letters. The net cost subtracts the full financial aid package from the cost of attendance. Since the financial aid package includes loans, your costs will be higher than the net cost figure. A net tuition figure subtracts gift aid from just the tuition and fees, ignoring other college costs. Both the net cost and net tuition figures are misleading and can confuse you about real college costs. They are marketing gimmicks, designed to make you think the college is less expensive than it really is.

Some colleges may include non-need-based loans in the financial aid package, such as unsubsidized Federal Stafford Loans (sometimes called Direct Loans) and Federal Parent PLUS Loans. This is often called “packaging PLUS.” Although the intention is to make the family aware of options for financing the cost of a college education, this can also mislead the family into thinking that the college is less expensive when the loans are characterized as reducing college costs.

Similarly, the expected family contribution (EFC) is misleading, as your actual costs will be higher than the EFC. Most colleges do not meet full demonstrated financial need, leaving you with a gap of unmet need. Even among the colleges that meet full need, many include loans in the financial aid package. Loans do not cut college costs; they spread out the costs over time.

There are also several factors that can affect the accuracy of the net price.

  • If you’ve won a lot of private scholarships, ask each college for its outside scholarship policy. The outside scholarship policy discusses how receipt of one form of financial aid, such as a private scholarship, displaces other forms of financial aid. About one-fifth of colleges will reduce their own grants when you win an outside scholarship. This causes the net price to remain unchanged. Other colleges will allow the private scholarship to fill the gap, if any, and reduce loans and work before grants. This yields a lower net price.
  • At most colleges, the financial aid award letter provides information about just one year’s college costs and financial aid. Most do not provide information about all four years. Your net price may change from one year to the next. About half of colleges practice front-loading of grants, where you will have a more favorable mix of grants in the financial aid package during your first year than during subsequent years. To tell if the college practices front-loading of grants, look at the financial aid tab of the college’s profile on the College Navigator website. Compare the percentage of students receiving grants and the average grant amount for beginning undergraduate students and all undergraduate students. If the figures for all undergraduate students are much lower, it can be a sign that the college front-loads its grants. (If the college has a lot of transfer students, it can also be a sign that the college is less generous to transfer students.)

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