For many families, college financial aid offers are a bit of a mystery. Some students get full-ride scholarships. On the other hand, there are families paying full price.
Financial aid packages can be confusing since they can include grants and other aid that does not need to be paid back, plus federal student loans that need to be repaid over time. Then you include scholarships and grants from the university, along with private scholarships, and it’s hard to follow the money.
How do you know if you’re actually getting a good financial aid offer? Are you actually overpaying for college?
What Is a Good Financial Aid Offer?
According to the U.S. Department of Education, the important first step when picking a school is figuring out the net price of attendance. Most colleges offer easy access to net price calculators that can help as a starting point. Once you receive your financial aid award, you can see your exact numbers.
The net price sounds simple: total cost of attendance minus financial aid.
Your financial aid award will have the total cost of attendance listed at the top.
From there, you'll subtract any scholarship or grant amounts listed in your financial offer from the cost of attendance.
Next, there will be another set of subtractions for student loans and work study aid.
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At the bottom, you will see the net cost for one year of higher education, which you'll need to fund with college savings you have, or the money you earn throughout the year.
How can you tell if a financial aid offer is good? While each financial aid package is different, consider the following:
A Good Balance Of Scholarships And Grants
When a school sends you a financial aid offer, you'll want to look for free money first (scholarships and grants), earned money second (work-study programs), and borrowed money last (federal student loans). Data journalist James Campigotto of College Rover adds that a good financial aid offer relies on a decent amount of money from scholarships and grants compared to student loans.
"Ideally, the offer should meet a significant portion of your demonstrated financial need through grants and scholarships, minimizing the amount you'll need to borrow," he says.
Campigotto adds that some red flags to watch out for include an excessive reliance on loans, a high expected family contribution that may be unrealistic for your circ*mstances, a lack of institutional aid from the college itself, or all of the above.
Christopher Hamilton of Hamilton Education also says to make sure you understand how loans are listed in a financial aid offer, especially since some schools intentionally obfuscate aid terms to confuse families. Hamilton says he is often surprised at how many families look at the “bottom line” figures for cost of attendance without realizing that loans make up much of the offer. This is definitely unfortunate, but it's not surprising since even the U.S. Department of Education lists federal student loans as a type of financial aid.
Subsidized Vs. Unsubsidized Student Loans
Campigotto also points out the difference between subsidized and unsubsidized federal student loans, and the impact it can make on college costs. Where subsidized student loans do not accrue interest while the student is in school, unsubsidized loans can and tend to result in much higher borrowing costs.
While not all students can qualify for subsidized federal student loans, this is still a factor to keep in mind as you compare college financial aid offers.
Renewable Aid Items
Financial advisor Jack Wang of Innovative Advisory Group says that families need to understand which items in a financial aid package can apply to multiple years and which ones will not. For example, colleges often front-load financial aid with things such as a grant for visiting the college, or filling out the Free Application for Federal Student Aid. However, these items may only apply for the first year of school, thus increasing college costs for subsequent years.
Other nonrenewable aid items can include grants tied to living on campus, and even certain clubs. Some scholarships may also only apply to the first year of college, and not to subsequent years.
"While it is always great to get more aid, non-renewable aid simply means that the college will cost more in the future," says Wang.
Check TuitionFit To Parse College Costs
Many experts also recommend families use a platform called TuitionFit when assessing financial aid offers. Hamilton says TuitionFit leverages shared information to "bring transparency to a process that is usually very opaque."
This is especially important since schools want to protect their yield — the percentage of accepted applicants who decide to attend — in order to rank well in various college rankings surveys. TuitionFit helps individuals figure out what other families have received from a university in terms of aid, and this knowledge can be invaluable. This becomes even more true when families are considering multiple financial aid offers from different schools.
"Crowdsourcing these offers through TuitionFit makes a lot of sense for families because it gives them the sort of information that was once only the province of experts and insiders," says Hamilton.
The Bottom Line
Assuming families have carefully read the financial aid offers, and have distinguished loans from grants, Hamilton says the key to making a good assessment is comparing apples to apples. In other words, sit down to compare all the offers you have from various schools to see what your out-of-pocket costs actually are.
Hamilton adds that universities with similar rankings and desirability should be making similar offers. If they aren't doing that already, that's one area where you may have some negotiating power.
"If a university’s offer is significantly below that of a peer institution, you should bring that to their attention," he says, adding that most universities will match an award from a peer institution to avoid losing a candidate and harming their yield.
At the end of the day, the goal should be getting as much aid as possible and borrowing as little money as you can. This may come from a more expensive school that offers a more robust aid package, or from a more affordable state college that offers less aid. Either way, you'll need to do some research to know for sure.
