After diligently reporting their families’ financial information as accurately as possible in the FAFSA under the threat of a $20,000 fine and/or prison, high school seniors are anxiously waiting to receive their financial aid award letters. Now, even though each student’s family situation is different, applicants all completed a standard form for financial aid. Major financial factors such as loss of job or health issues have to be addressed in a separate letter to the financial aid office.
So why will the student probably receive financial aid award letters in as many formats as colleges applied to and often designed to deliberately mislead families on how much money they will have to pay?
From Shopping Sheets to College Financing Plans
In 2012, the U.S. Department of Education proposed a common financial aid award letter form called the Financial Aid Shopping Sheet. The idea was that students and their families would be able to finally compare apples to apples if colleges used the same definitions and presented the information the same way.
As you might imagine, colleges raced to implement the form. Right, you would be imagining it because adaptation had been gradual at best. There was quite a bit of push-back from colleges claiming that the standard form didn’t allow the school to most effectively present its financial aid award to the student. The question is effective for what?
The National Association of Student Financial Aid Administrators even put together a report No Clear Winner: Consumer Testing of Financial Aid Award Letters. It’s based on a survey/focus group of a total of 90 participants. The results are as the title suggested. I suppose the one thing that can be said is that at least they were honest since of the three forms tested, theirs came in last. Regardless, it gave colleges cover for choosing to not implement the form.
Why bring this up? Because in 2018 the Department of Education decided to revise the template and they explicitly mention the NASFAA report. Didn’t mention the report on How Financial Aid Award Letters Fall Short or Decoding the Cost of College, though.
The new form is called the College Financing Plan “to more accurately reflect that loans may be a significant part of the student’s investment, and to emphasize to students that they are making a significant financial transaction with long-term implications when enrolling in an institution.” Reading this made me think of every commercial I’ve seen for a costly product that encourages you to think of it as an investment.
There are other changes, a few I would consider an improvement. But they also eliminated things including showing the graduation rates and student loan default rates which they said students didn’t see as relevant. Score a win for the colleges.
Yes, Loans are Part of Financial Aid but…
Even with the new more “college” friendly template, many colleges are still using their own format. And you’ll still encounter financial aid letters constructed to make it less than clear how much money the school is providing and how much the family is expected to borrow. It is fundamentally dishonest for a school to lead students to believe that their need (Cost of Attendance minus Expected Family Contribution) is met when it includes any self-help aid–that means mainly loans.
And by loans, I’m including government subsidized loans as well. Just because the government is paying the interest on a loan while the student is in school shouldn’t mean the loan should be listed as “gift aid.” Yet it’s generally acceptable for these loans to be part of the net price calculation along with grants and scholarships. That means that low-income students can’t use the subsidized loans to meet any of their EFC. Just one more thing to watch out for on the financial aid award letter.
Ultimately, the lack of a standard financial aid letter format means that students and families need to educate themselves so that they understand what the letters say and don’t say. The following resources are five ways to get smart about financial aid award letters.
1. Must Read
If you’re only going to read one article, I suggest How to Read and Evaluate Your Financial Aid Letter. It explains Net Price and is the only one I’ve seen that warns you about the problem with Work-Study jobs.
2. Ways to Compare Financial Aid Award Letters
There are several financial aid award comparison tools available including the Discover Award Letter Comparison and one from Big Future. The Hechinger Report has an OfferLetterDECODER that lets you upload your offer and it will breakdown the type and amounts of aid you’re being offered.
For those who prefer to keep all of their information off-line, use the Excel Award Letter Comparison Tool provided by the Vermont Student Assistance Corporation. The nice thing is you can add as many schools as you like. The Award Letter Analyzer does the same in Google Sheets.
3. Issues to Consider
Outside Scholarships. Outside scholarships must be reported to the college financial aid office and may affect your financial award. How it will affect your award will depend on the college. Read How Do Scholarships Affect Financial Aid? for the possibilities. Ultimately, you’ll have to check with each school.
Gapping. When colleges do not meet 100% of a student’s need, there is a financial gap. Sometimes, the existence of a gap isn’t obvious because the financial aid letter includes PLUS or private loans that cover the gap. But such loans should not be counted as money from the college to meet the student’s financial need. Read more at What is financial aid gapping?
Net Price and Net Cost. Make sure you understand the difference between Net Price and Net Cost. Net Price is how much the college is charging after applying any gift-aid such as scholarships and grants. Net Cost is about how much the student will pay after all financial aid awards including student loans and work-study. When comparing colleges, student should be using Net Price and not Net Cost. Read more at How Financial Aid Award Letters Fall Short.
4. Examples of Letters
The more letters you see, the more familiar you’ll be with what to look for. Three of the following have sample financial aid award letters with reviews. The fourth lists sample letters to appeal a financial aid award.
Financial Aid Letters Often Hide the Real Cost of College includes three financial aid letters and their limitations. Of the 515 letters uAspire analyzed, only 40% stated how much the students would need to pay.
How Financial Aid Letters Often Leave Students Confused and Misinformed Evaluates five letters with special attention on PLUS loans.
Financial Aid Letter.com contains six financial aid letters and calculates the actual cost for the family.
Financial Aid Appeal Letters What it says, a sample letter to appeal the award. If you are appealing, be sure to read Negotiation and Professional Judgment as well.
5. Ways to Evaluate Financial Aid Award Letters
The following all provide information and tips on how to read a financial aid award letter.
- Financial Aid Award Letters: Eschew Obfuscation
- Tips for Interpreting Award Letters
- How To Read Your Financial Aid Award Letter
- 10 Rules For Decoding College Financial Aid Award Letters
- How to Read Your Financial Aid Award Letter: 5 Examples
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