If you’ve filled out the FAFSA and applied for financial aid, including grants and scholarships, sometime in May you’ll receive a financial aid award letter from the colleges that accepted you as a student in the coming year. While receiving financial aid is a blessing, the confusion caused by many financial aid award letters is not. Colleges do not use a standard form or format, nor do they necessarily tell you the actual cost of attendance (COA) or sticker price of the school. On top of that a college might load up the self aid portion of the award, making it seem like the entire cost of the school has been covered, while in truth, most of that aid is in the form of loans, Stafford student loans and PLUS loans for your parents. Since the schools do not use any standard format, each college’s award letter will be different. The confusion is real and causes many families to make disastrous financial decisions that could impact the rest of the student’s financial life, even into retirement age.
Retirement age, you ask? Yes, unpaid school loan debt is now deducted from retired people’s social security payment if they didn’t manage to pay off all their school loans during their working years. In other words, people retiring at age 65 might still owe on student loans. While that may seem unbelievable, don’t make the mistake of not believing it. The loans that young people take on in order to go to college can follow them the rest of their lives. This is one of America’s horror stories and it could affect you as well if you don’t make careful decisions about college and student loans.
Every financial award letter you receive should mention the cost of attendance at the school, clearly listing the tuition, room and board, fees, books, approximate travel and personal expenses. While some schools give you an accurate picture of the COA, others do not or they don’t include books, travel and personal expenses of average students at their school. After reading the award letter, if you feel you don’t have an accurate picture of the real cost of a year of attendance at the college, call the financial aid office and ask.
What you’ll see on most financial award letters is a partial COA, that is, tuition, room and board and fees. What’s left off is the cost of textbooks, travel expenses for home visits during the school year and approximate personal expenses. Textbooks can run $1,200 a year, and travel and miscellaneous personal expenses can vary. If you can’t find the COA in any materials they’ve sent you, you can estimate by totaling the tuition, room and board and fees, then add $3,500 on top to cover the books, travel and miscellaneous, and you’ll be close to the COA. However, calling the financial aid office can resolve this for you. Federal government requires colleges to disclose the COA, so while it might not be apparent on your award letter or in other materials, the financial aid officer will tell you.
The financial aid portion of the award letter comes in three components, gift aid or grants and scholarships, and self aid, which comprises federal work-study wages for work you’ll do on campus, and loans, usually Stafford subsidized loans for students and PLUS loans for parents. The total cost of the school to you and your family many not be fully covered. This is known as gapping, where colleges do not choose to cover your full financial need. Whatever the gift aid and self aid of work-study and loans doesn’t cover, the student is left to cover the gap and come up with the rest of the bill however he may.
For students, another call to the financial aid officer is required because you cannot simply assume that the grants and scholarships will be renewed for all four years of college. They may or they may not, but you need to check and find out. If the gift aid will be there for you each year, you will have to file the FAFSA for each year, and keep your GPA at the required level. Some grants and scholarships may be awarded at a GPA of 2.0, others at 3.0 or 3.5. Find out if the gift aid is scheduled for all four years and what your GPA will need to be. If you keep your grades up, then you could receive that aid for your college career. Beware of letting your grades drop or not filing the FAFSA or you may lose the aid.
Another thing to be aware of: freshman are awarded $3,500 from a Stafford subsidized loan, based on their financial need, sophomores $4,500 and upper classmen $5,500 per year. Knowing this, colleges may lower the gift aid portion of the financial aid to allow for the greater amount in Stafford loan amounts.
Colleges often write their financial aid award letter and make it seem as if the financial aid offered by the government and the college equals the COA of the school. However, this isn’t always the case. An interesting and informative Web site called Financial Aid Letter shows samples of award letters from six different colleges from around the country. It also has a “decoder” that reveals what the award letter is really offering the student. While each college makes it seem like the student’s costs are covered, hitting the decoder button reveals quite a different picture. Students and their parents should check out the excellent job Financial Aid Letter has done to show the problems with financial aid award letters.
In one example, the COA of the university was approximately $31,000 and the financial “aid” came to $32,000, but click the decoder button and a different picture emerges. For example, the COA should be estimated up to $35,000 as it didn’t include textbooks, travel and miscellaneous expenses. The decoded financial aid did include $11,000 in an academic scholarship for the year, but the rest of the aid came in the form of loans: $3,500 for the student and something called “alternative financing,” which was actually another loan for $17,730. In other words, the true cost to the student and family would have been $24,000 a year.
That kind of confusion and the financial mess it can create in people’s lives has generated some response in the form of complaints from politicians and concerned citizens. If colleges would provide award letters detailing the true cost of attending the college and describe the financial aid in clear, concise terminology, then students and their families could make wiser decisions regarding a college education and the cost.
What can students and families do? Fortunately, some relief can be obtained by using the Financial Aid Comparison Shopper from the Consumer Financial Protection Bureau to compare offers from different colleges. The FinAid Web site also offers help and advice on college financial aid as well as a comparison tool for financial award letters from different schools. Before accepting any college’s financial awards and sending in an enrollment check, students should exercise due diligence and find out exactly what each college costs and what amount of financial aid is offered, as well as any gap between cost and aid that may be revealed. Use the tools mentioned here and check out the Financial Aid Letter site to become fully informed.