This article was originally written for FirstGenerationStudent.com, now a part of ImFirst.org.
1. What is the total cost of attendance?
When you receive a financial aid award letter, you should first determine the school’s total cost of attendance. This information may be included in the award letter, or you may have to visit the school’s financial aid website in order to find it.
You should consider both direct (tuition, fees and room and board) and indirect costs (personal expenses, transportation, books and supplies). Even though schools will typically only bill you for direct costs, it’s important to estimate these additional expenses in order to budget accordingly.
2. How much and what types of financial aid have I been offered?
After you have determined the total cost of attendance, look to see how much financial aid the school has offered you. Has the school given you enough to cover all or most of the total cost of attendance?
Next, look to see what types of financial aid have been offered. The best kind is “gift aid,” or money that doesn’t have to be repaid, such as grants and scholarships. Your award offer may also include “self-help aid,” including federal student loans or work study.
These types of financial aid have requirements attached to them. Student loans must be repaid with interest after graduation. Work study requires a student to find an on-campus job and work a specified number of hours.
3. What are my out-of-pocket costs?
To calculate your out-of-pocket expenses, take the total cost of attendance and subtract the amount of financial aid you have been offered. The final number is the net price.
Cost of Attendance – Financial Aid = Net Price
Note: Even if work study is offered as part of your financial aid package, you should not include it in your calculations. The amount reflected in the award letter is only an estimate of what you may earn over the course of the year. This money is based on the assumption that you will work an on-campus job. The earnings from your work study job are not automatically credited to your student account and can be used for personal expenses, books and supplies.
If you just want to find out how much you’ll owe the school, use only the direct costs (tuition and fees, room and board) in your calculations.
Direct costs – Financial aid = Amount owed to the school
Keep in mind that you will still be responsible for paying for books, supplies and other personal expenses
Example of a “Bad” Award Letter
The University of Iowa has broken down the total cost of attendance, including both direct and indirect costs. Understand that the school has estimated the indirect costs to give you an idea of what you might pay. You could spend more or less depending on a variety of factors.
For example, here they have estimated $1,240 a year for books and supplies; however, the types of courses you take, whether you buy new or used books, and your major will determine what you actually pay.
The school has offered very little financial aid, and all of it is “self-help aid.” This includes about $5,500 in federal student loans. In addition, the student has been offered work study in the amount of $3,500.
The school has also included a Parent Plus Loan for $33,218. However, this is misleading because even though the money is in the award letter, it is not guaranteed. Parents who wish to borrow this money must complete a separate loan application and be approved. Depending on your parents’ credit history, this may not be an option. Also, remember that your parents would be required to borrow this amount each year!
To calculate the net price, take the total cost of attendance and subtract the financial aid (excluding the work study amount).
$40,796 (total cost of attendance) – $5,500 (financial aid) = $35,296 (net price)
If we want to figure out the amount that would be owed to the school, we take the direct costs and subtract the financial aid (excluding the work study amount).
$37,618 (direct costs) – $5,500 (financial aid) = $32,118 (amount owed to the school)
This is a “bad” award letter because even though the cost of attendance is included, it is unclear exactly what the family will owe. There are incredibly high out-of-pocket costs, and the school expects the family to take out a Parent Plus Loan in the amount of $33,218.
If you simply looked at the family contribution, you would think you only owed $12,175, which is why it is always important to do the math yourself in order to understand exactly what you will be paying.
“Good” Financial Aid Award Letter
This letter also breaks down the expenses into direct and indirect costs. To attend Western Illinois University for a year, the amount the student will be billed (direct costs) is $22,038, and the total cost of attendance is $25,377.
This student has been offered several grants and scholarships equaling $16,495 and another $5,500 in federal student loans.
Moreover, the school has calculated the student’s anticipated out-of-pocket costs.
$22,038 (direct costs) – $21,995 (financial aid) = $43! (owed to the school)
Remember that even though the student will only owe the school $43, they will still be responsible for books and other school-related expenses.
This is a “good” financial aid award letter because the school clearly outlines what the different costs are and calculates how much the student will owe. The majority of the financial aid offer is gift aid, and the out-of-pocket costs are extremely affordable.
A few more tips:
- Make sure you read the entire financial aid document in order to fully understand the terms of the financial aid package being offered.
- Find out if your grants and scholarships are renewable (offered for more than one year) and if there is a minimum GPA to keep these awards.
- Submit all required paperwork by the deadlines to avoid losing your financial aid offer.