Demystifying the Financial Aid Letter

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It’s spring, and to millions of high school seniors and their families, that means those ubiquitous financial aid packages will start appearing in mailboxes. Trouble is, most financial aid letters need to come with a translator, or at least a financial planner. No need to worry though, take the following tips with you while scouring your future collegian’s financial aid letter.

To drill down and get the information you need, your first step is to identify what’s really important — and what isn’t.

The three keys to any college aid letter, no matter what school it comes from, are as follows:

  • How much financial aid do you get?
  • Of that total financial aid, how does it break down? In other words, what percentage of the money comes from grants and scholarships (which don’t have to be repaid) and how much comes from loans (which have to be repaid)?
  • When all is aid and done, how much money will you have to pay to plug any financial gaps for tuition?

Unfortunately, there is no universal template for financial aid letters — different colleges take different approaches to college aid packages. Consequently, knowing what to look for takes on even greater relevance. For instance, phrasing is particularly important when deciphering a financial aid package. Some colleges and universities may use the term “loans” in describing private and public loans, while others may list them under the wider term "financial aid."

You’re also likely to see the following terms in your financial aid letter:

Pell Grant. The Pell Grant is earmarked for families with annual incomes of $50,000 or less. The capped, maximum annual amount you can receive via a Pell Grant is $5,500 for 2010-2011.

Federal Work Study. Most colleges also offer aid in the form of work study programs, i.e. part-time jobs that usually pay the federal minimum wage. Most college students are eligible for work study, but you have to push hard and go after the limited number of jobs on campus. The letter won’t tell you about work study positions, so a trip to campus before school starts can give you the upper hand on the best part-time jobs.

Perkins Loan. The Perkins loan is a federal loan that offers up to $5,500 annually, at an interest rate of about 5% yearly.

Stafford Loan. Another popular type of loan is the Stafford loan. It’s also funded by the U.S. government and usually has wider parameters about who is and is not eligible. Look for the eligible loan amount on your college aid letter — typically, the loan is given under the student’s name.

Most financial aid letters will categorize obvious items like the cost of attendance, the amount and type of financial aid offered, and what types of aid you’ll have to repay. Don’t expect ancillary items like fees, textbooks and housing to be included in the financial aid package you receive — in most cases they’re not.

You’ll really need to go through your financial aid letter witha fine-tooth comb. But, like most financial documents, a more thorough review now can save you loads of trouble down the road.

For an interesting graphical take on deciphering college aid letters, check this out.

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