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Understanding Financial Aid Award Letters

Updated: Feb 28, 2023

What is a Financial Aid Award Letter?

If you filled out and submitted a Free Application for Federal Aid Student Aid (FAFSA), then a financial aid award letter lists the amount of financial aid offered by the college you’ve been accepted to. It comes with the offer of admission or a little after it, usually in late March or early April. Some are available online on the college/university’s portal. A financial aid award letter usually includes the cost of attendance (COA), which is the cost of attending one year at that particular college. This amount ideally takes into account tuition and fees, books and supplies, room and board, transport, and sometimes even personal expenses – if the college is offering them all.

Remember, you do need to reply to financial aid letters coming from colleges you’ve applied to – before the deadline stated in those letters. You don’t have to accept all the financial aid being offered – since you’ll have to pay it back if it’s not all in terms of scholarships. Or, if you need more financial aid, you can ask the college’s financial aid office to review your financial situation/the amount it has offered you. But you can’t do both, rejecting some forms of financial aid and asking for more financial aid.

Nowadays, whether an individual gets a chance to go to college depends more and more on the amount of financial aid they receive from the colleges they’ve applied to.

Why are Award Letters Confusing?

Financial aid award letters don’t conform to a standard format. They also use cryptic terminology, to an extent. The Financial Aid Shopping Sheet designed by the US Department of Education and the Consumer Financial Protection Bureau (CFPB) is currently voluntary for colleges to use as part of their financial aid award letters. Due to a lack of standardization, it is difficult to compare financial aid reward letters easily. For example, the COA varies from college to college in terms of how it is stated, and in what it includes. One college may give a single figure for the total COA, while another might list all the major elements and the amount the college can award/loan for: tuition and fees, room and board, transportation, books and supplies (some even include personal expenses). Nearly one-third of colleges do not include the COA, at all. There are also issues with how some colleges choose not to specify how much of their financial aid package is in the form of work-study, loans, and grants.

The student must decide on which college to choose by May 1 (National Candidates Reply Date); this is just a few weeks after having received the financial aid award letters from the colleges they listed on their FAFSA. Most colleges cost more than the expected family contribution (EFC), so the student has to grapple with unmet financial need. How can a student compare colleges if they don’t follow a standard format, and have confusing terminology in the award letters?

Factors to Consider When Reviewing an Award Letter

Since colleges do not follow a standard format, and do not contain uniform information, students and/or their parents have to unravel the terminology in each award letter to compare them against each other. Here is a list of terms that award letters should contain:

Cost of Attendance (COA) – An estimate of tuition and fees, room and board, books and supplies, etc. This may be given as a single figure or a number of figures adding up to the total COA.

Expected Family Contribution (EFC) – This is the contribution the US government expects your parents or other family members to pay towards your college education.

It is the amount of money the US Department of Education determines and includes in the Student Aid Report (SAR) it sends to the student if they have applied for FAFSA. It also sends the EFC and other student information to the list of colleges and universities listed on the student’s FAFSA form.

Loans – This is money you will have to repay after graduating from/dropping out of college. This includes the Federal Perkins Loan, Federal Stafford Loan, Federal Parent PLUS loan, and institutional loans, as well.

Gift Aid – This consists of money such as grants and scholarships. It does not have to be repaid.

Direct/Indirect Costs – Direct costs are those paid to the college. For example, tuition and fees are direct costs. If the student is going to live on campus, room and board is also included as a direct cost. Indirect costs include computers, student health insurance, books and supplies, etc. Many colleges don’t provide realistic living expenses (ex: cost of transportation, textbooks, etc.) in their course catalogs or their portals.

A student’s financial need is calculated by subtracting the EFC from the COA. That is, the amount of financial aid you need = COA - EFC

“Dale also saved me tons of money by reviewing our financial aid offers. We are extremely pleased with our experience and highly recommend to anyone struggling with the college process.” — Laura Martinez, Austin TX

Gift Aid, Loans, and Work-Study

Gift aid refers to any aid that does not have to be repaid. This consists of scholarships, grants, and tuition waivers – the latter two are usually awarded for meeting certain financial criteria. Loans need to be repaid, while work-study programs are federally funded or offered by the university itself meaning that you’ll have to work for a certain number of hours per week, while working towards your degree.

Understanding Net Costs and Net Prices

The net price is the actual cost of attending the selected college. It is the amount that the student and their family have to shoulder, after taking into account gift aid. Net costs is the difference between the total college cost and the amount it has awarded as financial aid (this includes loans and student employment, as well).

Net Price = COA – Gift Aid
Net Cost = COA – Total Financial Aid

If the college’s financial aid award letter does not indicate a loan as loan, and puts grants and loans together, it confuses the student and their family as to what amount must be repaid, and what amount is gift aid. The lower the net price, the lower a student’s debt after graduation. Being unable to calculate the net price makes it more difficult for students and their families to make a decision that will keep the student from sinking into debt after graduating.

Samples of Good and Bad Award Letters

As mentioned previously, colleges do not have a standardized format for financial aid award letters, and tend to use cryptic terminology making it hard differentiate between grants and loans.

We provide you samples of each, below.

Example of a Bad Financial Aid Award Package

Sample of a Bad Financial Aid Award Package

The above financial aid award package is a bad example of what can be included in an award letter. Note that it does not include indirect costs such as textbooks, personal expenses, and transportation. It also randomly mixes grants and loans, confusing the student and their family as to which is which. Another issue with it is that it uses the Federal Parent PLUS Loan to reduce the net cost so much so that it seems reasonable. It neglects to spell out the interest rate and loan payment for each loan (any loan, actually) as a further indication that the loan is money that needs to be repaid. Lastly, it uses “L,” for loans without specifically defining what it means in the letter.

Example of a Bad Financial Aid Award Package

Sample of a Good Award Letter

The above financial aid award package is a good sample of an award letter. Note that gift aid and loans are clearly separated. The letter includes the COA, indirect costs (books and supplies) as well as direct costs. It also includes the net price, making it easy for students and their families to compare it to other colleges’ net price. Compare the net price to the net cost. The net price gives a more realistic figure, and is significantly greater than the net cost.

Net Price = COA – Gift Aid

  • $17,000 = $44,000 - $27,000

Net Cost = COA – Total Financial Aid

  • $11,500 = $44,000 - $32,500

Also, since the award letter clearly states which loan is subsidized and unsubsidized, the student and their family can check online for the federal student loan interest rate. For the 2019-2020 academic year, the interest rate for a direct subsidized loan (undergraduate) was identical to that for a direct unsubsidized loan (undergraduate), 4.53%.

Below we show another example of a good financial aid award package.

Sample of How to Compare Financial Aid Award Packages

Here, the student and their family can easily compare the fictitious colleges’ COA, gift aid, loans, net cost and net price. Since the net price correlates directly with the amount of student debt after graduation, it would make financial sense for the student to choose the College of Unicorns over the College of Leprechauns.

In summary, financial aid award letters/packages are difficult to compare, however, with the information provided in this article and some persistent legwork, it is still possible.


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