What to expect from your financial aid package

If you filled out the FAFSA form by the end of December of your senior year, you may find that starting around March, you’ll start to get acceptances and financial aid packages from different colleges. These letters may include offers of scholarships, grants, discounts and other kinds of “free money” that you can apply to your college expenses.

Why would a college or university make these offers?

First, maybe they see something special in you. Perhaps you have better grades and scores than their average applicant, or you have an unusual skill or talent, or having you on campus makes the student body more diverse—ethnically or geographically.

It’s also possible that the school may not have filled its classes with students who can pay the full amount, so it’s having a ‘sale’ on the remaining open spots.

Whatever the reason, it may surprise you to learn that some of the financial aid you’re being offered includes loans. That’s not free money. That’s money you need to pay back. Which means you’re going to be in debt.

In addition, not all colleges are clear about what’s a loan, and they use all different kinds of ways to describe them. So it’s good to be able to recognize them. (For some examples, see page 13 of the report available here.)

Here are some important things to keep in mind when reviewing and comparing financial aid packages:

Josh’s story: “My ‘Cost of Attending’ was different from what my college said.”

Josh was accepted to several colleges, and quickly noticed that even after taking into account their different tuition rates, they had surprisingly different numbers for Cost of Attending, or COA. That’s because most schools use their own formula for determining COA.

In addition, it’s always important to keep in mind that any college’s COA is an assumed average of all students at the school. You’ll need to base your amount on your personal cost of attending.

So to better estimate your individual COA, be sure to ask yourself cost-related questions like these:

• Whether you plan to commute to the school or live on campus and come home occasionally, how much will it cost you to get to the school and back?

• Will you need to pay to store your things between years?

• Do you have special personal needs that will be part of your costs?

• If they have included an amount for other expenses, does that include things beyond just academic expenses (such as shampoo, movie tickets, or other lifestyle things you’ll need money for)?

• If it is a school where you’ll have to live off campus at some point in your college career, what are the local rental prices like in the area? (The good news is that your financial aid package and federal grants and loans can pay for off-campus rentals, though – phew.)

• It’s very possible that over your 4 years in college, the cost of various items (maybe even including tuition) will probably go up while you are in school. Did you work that possibility into your plan?

You can watch our video on the subject and download our budgeting worksheet here.

Noor’s story: “Three schools offered me financial aid, but only one gave me scholarships. The other two were just loans.”

Noor was excited when she saw how much money some of the schools she applied to were willing to offer her. But then, after reading the acceptance letters more carefully, she realized that of the three offers, only one was helping her pay her way. The other two were student loans that she would have to pay back over time.

That points out a very important lesson: You don’t have to pay back a grant or scholarship. But you do have to pay back a loan.

So to understand how much money you’re actually getting, you can do the following: 1. Separate the offers in your aid package into two categories: 1) Grants and scholarships and 2) Loans.

2. Educate yourself on the different names used to describe loans. You’ll find many of them on page 13 of this report.

3. Be sure you know how many years of school the grant or scholarship covers. If it is not clear that an offer is for all 4 years, confirm the number of years with the school.

4. Note: For Pell Grants, and many other grants and scholarships, you must maintain a certain grade point average. Also, improvements in family income might cause the amount awarded to be reduced.

Here’s a great Comparison Tool we recommend.

Taylor’s story: “It was nice seeing the amounts of financial aid, but I didn’t want to have more in student loans than my family and I could afford.”

Taylor took the smart step of figuring out how much each school’s financial aid package was suggesting should be borrowed.

Here are some things you can do to help make sure your college education doesn’t weigh you or your family down with too much debt:

1. Remember that Federal Loans tend to have a lower interest rate, but for a student who's considered a dependent on a parent or guardian's tax form, there's a maximum for each year of college. Those numbers: $5500 for the freshman year, $6500 for sophomore, $7500 for junior and $7500 again for the senior year. Students who take longer than 4 years may qualify for up to $3000 in the fifth year.

2. Your financial aid package may include something called Parent PLUS loans. With this option, your parents can borrow the money and give it to you to pay for college. However, it's important that they don't borrow more than they can handle. This article describes some of the risks, and this guide helps parents and guardians see how much is safe for them to borrow.

3. It’s a good to avoid borrowing more than $5500, because you are likely going to have to take out loans every year, which can really add up.

4. Whatever you do, please try not to borrow from any private student lenders. And always be sure to keep your borrowing in line with your career expectations. You'll find some helpful information on that topic here.

What to do if you come up short

If your college savings plus your financial aid isn’t enough to cover your college costs, you still have options. Here are some things you can do:

• Negotiate: Call the school and tell them you want to come, but you are politely asking if they can make up the difference between the amount offered and the cost of attending.

• Consider taking a part-time job: Estimate how much you might be able to make by working summers and holidays. You can work part time during school (maybe ten hours a week), but especially in the first semester, we would suggest focusing on coursework, and getting in a studying groove.

• Work summers and holidays to make extra money to help cover your expenses.

• Work study can be an option: If your college offers work study, you will need to apply for the available jobs and get one. Also, since this is already a part-time job, you shouldn’t plan on taking an additional part time work.

• Defer admission for a year and work to make money to put towards college.

• Take summer courses and graduate early if your college permits it. This can save you a semester of expenses.

• Consider community college, but only under certain circumstances like those described here.

• Commute and live at home – This can save you a great deal in college-related expenses.