This is a segment of Bautis Financial’s college planning series, which includes webinars, podcast episodes, blog posts and downloadables to aid college-bound students and families in the admissions process. Visit our college planning hub for more valuable resources.
Financial aid award letters are confusing, primarily because universities like it that way — it’s in an institution’s interest to appeal to prospective students and families by making an award letter appear more generous than it really is.
For example, nearly all schools include the Federal Direct Loan, also sometimes referred to as a Stafford Loan, of $5,500 in the package for an incoming freshman. To some, that $5,500 line item in the summary of costs and financial aid appears to be money offered by the college. In reality, it’s a loan that some prospective students may not want to borrow.
Here are tips to use when evaluating award letters so you can make clear, reality-based decisions.
- Pinpoint the Expected Family Contribution (EFC). It’s extremly important to identity a household’s EFC to know if the award is a generous one or not. The EFC, which is generated as a dollar figure, represents what the relevant financial aid formula says the family should be able to pay for one year of college. Ideally, the EFC will be included on the award letter. If it isn’t, families can obtain their EFC from the federal government by filing the Free Application for Federal Student Aid (FAFSA).
- Subtract the EFC From the Real Cost to the Recipient. Here is an example of the summary of costs and fincnaicl aid:
College cost of attendance: $60,000
Institutional grant: $25,000
Direct student loan: $5,500
In this example, the real cost to the recipient would be $35,000 — $60,000 cost of attendance subtracted by $25,000 institutional grant. For this example, we will ignore the direct student loan of $5,500. Is this a good award or not? You can’t possible answer this question without knowing what the financial aid formula says the family could actually afford. Let’s say the household’s EFC is $18,000. In that case, the award would be poor, because subtracting the EFC of $18,000 from the school’s $60,000 sticker price would have ideally generated an award worth $42,000, not $25,000.
- Appeal Based on the EFC. Once you have your relevant EFC, you can appeal an award that is a disappointing one. College is a buyer’s market at many institutions, so appealing an award that an EFC indicites is inadequate can be worthwhile.
To obtain more information on college planning and financial aid, visit our College Planning Learning Center.
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