How to read your financial aid award letter

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Getting into college is just the first step. Once you have that acceptance letter, your financial aid award letter will explain what you’re expected to pay for tuition, room and board, and other expenses.

Before you dive in, the most important thing to remember is that these numbers aren’t final. Here’s how to understand your financial aid package and what to do if it isn’t enough money.

What is a financial aid award letter?

Your financial aid award letter explains how much money you and your family will be expected to pay toward the total cost of attendance at university. You may receive it along with your acceptance letter, or you may get it a bit later. You can always call your financial aid office to check on timing and make sure they have everything they need from you to consider you for as much aid as possible.

You need to fill out the FAFSA (the Free Application for Federal Student Aid) every year that you want aid, so you’ll get a new one annually although the exact date you receive your financial-aid award letter may change. The amount you’re expected to pay for your first year of college may be significantly different from your second year if your financial situation changes.

Your offer letter will detail federal student loans and grants you’re entitled to based on the FAFSA, as well as any private grants and merit or need-based scholarships offered by your university. This will not include any information about private student loans¹.

Read more: What to Do If You Didn’t Get Enough Financial Aid

Key terms to know

How much financial aid you get will depend on your family’s financial status and your eligibility for additional grants. You may be able to get extra grants if one of your parents is in the military, for example.

Here are some terms that may come up in your letter or as you research options to pay for the cost of college.

Cost of attendance (COA)

This is the total estimated cost of going to school for a year, including tuition, living expenses, books, and other fees. Of course, your personal expenses will vary, so the net cost of a year of school may be higher or lower depending on how you’re able to reduce expenses (such as by borrowing your books instead of buying them new). The estimated cost of attendance is sometimes abbreviated as COA.

Expected family contribution (EFC)

Also called your EFC, your expected family contribution is the amount the federal government expects your family to pay toward tuition. This is calculated based on your family’s assets, such as your parents’ annual income and the money they have in savings accounts.

Financial need

Your financial need is the difference between the cost of attendance and your resources to pay for it.

Net cost

When you get your aid letter, you can calculate the net cost of the school year by subtracting free aid from the total cost of attendance. Your letter should detail the net price of the following school year.

Types of financial aid in your award letter

Similar to how your financial aid award letter might be called a financial aid package, merit letter, or financial aid offering, different schools refer to the types of aid provided differently. It’s important to understand if the aid awarded is a loan, grant, scholarship, or work-study program.

If you are ever confused by your financial aid letter, reach out to the school’s financial aid office.

Scholarships and grants

These are financial aid awards that students do not need to pay back — often called “gift aid.” Awarded for merit or need, these are ideal for students hoping to avoid taking on further debt. Requirements to keep your scholarship or grant each semester could include many things, like being a full-time student or earning a specific GPA.

If you have demonstrated financial need, you may get federal Pell Grants, which you won’t have to pay back. You may also be eligible for private grants or scholarships managed by your university.

If you don’t see scholarships or grants listed in your financial aid package, look for “need-based aid,” “merit-based award,” or “gift aid.” Some of these grants are awarded by your university automatically based on your financial need. If you’re a very strong student academically or athletically, you may be offered an attractive scholarship you don’t have to apply for.

However, many universities also have academic scholarships that you do have to apply for separately, and for which you may receive a separate letter or decision. Always contact your financial aid office and/or an administrator in the school you’re applying to (i.e. the science department, if you’re planning to major in chemistry) so you can be sure you don’t miss any opportunities for free money.

How will you get your money?

While scholarships are often applied as tuition discounts or stipends, some scholarships may have specific conditions or restrictions on how the funds can be used. Regardless of how the money is applied, you never have to pay scholarships back.

You can find outside scholarships through organizations in your community, including religious organizations and local businesses, and through online scholarship search engines.

Federal loans

As long as you’re a U.S. citizen or permanent resident, you’re eligible to borrow subsidized or unsubsidized loans from the U.S. Department of Education. If you have financial need, you may see Direct Subsidized loans listed in your aid package, for which you won’t have to pay interest while your enrollment is at least half-time. Direct Unsubsidized loans start accruing interest immediately upon disbursement to your university. If you fill out the FAFSA form, you will have the option to borrow them.

 It’s important to remember that you don’t have to borrow these loans just because you’ve been offered them. If you’re able to pay for tuition with other college grants or funds your family has been able to save, you can decline the loans. If you have the choice between subsidized and unsubsidized loans, you should always choose subsidized. You may also accept both types if you need the funding.

Federal loans have built-in protections for students as well as a wide variety of income-based repayment options that can reduce monthly loan payments as low as $0 while you’re on a lower income. So, they’re a good option for students who don’t know what their income will be like post-graduation. After school, most federal loans offer a six-month grace period during which you won’t be required to make monthly payments.

Work-study programs

Work-study programs are employment opportunities with the school on- or off-campus. Often, federal work-study is reserved for students who demonstrate financial need. Job opportunities could include working as a tutor, resident advisor, in the school fitness center, in a research department, computer lab, etc.

Like any other job, you’ll have to apply and interview to win the position. On top of that, you’ll have to find a balance between your class schedule and homework. Not only is this a great way to lower the cost of tuition, but it also serves as a great resume-builder for students.

In your financial aid award letter, you might see work-study labeled “self-help aid” or “earned money.”

How to compare financial aid award offers

If you are not set on a school yet, it can be helpful to compare your financial aid award letters. Understanding the real cost of each institution might make your choice much clearer.

Here are two examples that show how aid packages might compare from two different universities. The tuition for University B is more than twice as much as University A, but thanks to a generous aid package, the out-of-pocket cost is similar.

Sample Cost Comparison for a First-Year College Student

*Example is for illustrative purposes only and will vary by individual.

It’s also important to consider additional costs that aren’t factored into the cost of attendance. Let’s say you get two offers with financial aid options that make your direct costs to the university (tuition, room and board, and fees) exactly the same.

But let’s say that first university is in Seattle, and you live in Tampa. That means you’ll have to spend more money on traveling and moving each year if you plan to visit home during the holidays. And if you’re flying to school, you’ll also likely have to purchase more living essentials in your new city, like dishes, bedding, and room decor, rather than packing what you already have from home that fits in the trunk of a car. These things add up quickly.

How to supplement financial aid

Your financial aid offer isn’t final. You can write a financial aid appeal letter² to ask for more funding from your university. You can also call and ask about additional funding opportunities you may have missed when you first applied. If you do, make sure to ask the right questions if you want to get more aid. 

It might seem like a long shot to simply ask for more money, but the worst the university can say is no—they won’t rescind your acceptance because you’ve asked.

You can do this every academic year, and you should, especially if the school’s cost goes up. Here are a few other ways to supplement your aid package in the event you still have a gap between your offer and costs.

529 Plan

A 529 Plan is a special college savings plan that allows parents to save and invest for college costs tax-free. Similar to a tax-advantaged retirement fund like a Roth IRA, a 529 plan allows you to withdraw money you’ve invested without paying taxes on gains, as long as the money is used for qualifying educational expenses. While this can be a great way to save up for school, it’s also important to note that investing comes with risks, so you should be mindful of your savings goals and timelines at the outset.

Parent PLUS loans

Parent PLUS loans are a way for parents and guardians to borrow a loan amount up to the cost of attendance. Interest rates are fixed each year and require a credit check. An adverse credit history is not permitted unless there is an appeal to extenuating circumstances. So, as long as you don’t have any adverse marks on your credit history and you’re a U.S. citizen or permanent resident, you should be able to access these funds.

Private scholarships

It’s always worth using scholarship search engines to find opportunities for free money you might have otherwise missed. You might find a scholarship for star debaters, or one specific to field hockey, or one specifically for an aspiring filmmaker. It takes time to apply for these, but you can often tailor the same letter for multiple opportunities. And of course, these awards add up.

Private loans

Private lenders are unaffiliated with the U.S. Department of Education, and offer interest rates based on your credit score and other factors. While interest rates for private lenders can be lower than those from the federal government if you have excellent credit, they may be much higher for students applying without a cosigner.

You may want to consider private loans if you have exhausted the Federal Direct loans available to you. Just make sure you have a parent or guardian in a secure financial situation who can cosign a loan for you. This may allow you to access a lender’s lowest rates. 

Just remember –– If you’re not able to make payments, it will reflect badly on your co-signer's credit report as well as yours, so it’s important that you and the cosigner are always in communication about the loan.

When choosing a private lender, you’ll likely want to look for a company that doesn’t require you to make payments while you’re enrolled part-time or full-time at university. While it will save you money to make payments while you’re in school, having the option to wait until you graduate can alleviate stress if you’re not easily able to hold down a job while studying.

HELOC

A Home Equity Line of Credit, often abbreviated as a HELOC, is a way to leverage the equity in your home for lower-cost borrowing. HELOCs usually have lower interest rates than other types of loans, such as personal loans or credit cards. It may make sense to consider a HELOC if the rate offered to you is lower than other forms of financing you qualify for, but only if you know you’ll be able to pay it off. With a HELOC, your home is on the line if you’re unable to make payments.

Learn more about Earnest student loans

Learn more about Earnest student loans. Earnest grants students a 9-month grace period³ and some of the lowest interest rates around. On top of that, Earnest clients in good standing can request to skip a payment once a year⁴ if an unexpected expense comes up, so you have a little cushion if something goes wrong.

Why choose Earnest? Our excellent Client Happiness team, with a 2-minute wait time to speak to a human, and our stellar reviews are key differentiators are just a couple reasons why. We were also recently recognized by CNBC as one of the world's top fintech companies. 

Up next, not sure when to take out student loans? Check out our guide on how to qualify and apply student loans in the right time frame. 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 Before applying for private student loans, it’s best to maximize your other sources of financial aid first.  It’s recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don’t have to pay back, like scholarships, grants, and work-study opportunities.  2) Next, fill out a FAFSA(R) form to apply for federal student loans.  Federal Direct subsidized and unsubsidized loans, excluding PLUS Loan for Parents and PLUS Loan for Graduate and Professional Students which require a credit check and a credit worthy endorser if the parent or graduate or professional student has adverse credit, do not require a credit check or cosigner, and offer various protections if you're struggling with your payments.  3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2.  For more information, visit the Department of Education website at https://studentaid.gov/.

2 Submitting your appeal letter does not guarantee an adjustment of your financial aid award. Please consult with the relevant university’s financial aid office for additional questions.

3 Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school. 

4 Earnest clients may skip a payment through a one, one-month forbearance during a 12 month period. Your first request to skip a pay can be made once you’ve made at least 6 months of consecutive on-time full principal and interest payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Any unpaid accrued interest may capitalize (added to the principal balance) at the end of the forbearance period by adding unpaid accrued interest to the outstanding principal as permitted by law and the terms of the loan agreement.