Understanding Your Financial Aid Award Letter

With several offers on the table, trying to figure out which financial aid package is best for your particular situation can be difficult, especially if this is your first year dealing with the financial aid process.

To help you decipher your financial aid award letters, here’s a step-by-step guide to what to look for and what those numbers mean.

How Your Financial Aid Award Is Calculated

The information you provide on the Free Application for Federal Student Aid (FAFSA) each year is used to generate your Student Aid Report, which contains a dollar amount for your Expected Family Contribution. The EFC is the amount you’re expected to pay for college for one year.

The EFC calculation takes into account various factors, including your family’s income, assets, and whether you have any brothers or sisters in college. Schools use your EFC to determine your “financial need” — the difference between the cost of attendance and your EFC.

Some schools use an institutional EFC calculation in addition to, or instead of , your federal EFC, so your EFC and financial need can vary by school.

Your financial need will determine the types and amounts of aid you receive in your financial aid awards. Financial aid may include scholarships, grants, work-study awards, or student loans.

Analyzing Your Offers

Since there’s no such thing as a standardized award letter, with some award letters varying greatly from school to school, be careful to compare apples to apples when you’re crunching the numbers and weighing your offers.

When one school is awarding you tens of thousands in college loans that will eventually need to be paid back, with interest, and another school is giving you a smaller award that’s all in scholarships that won’t ever need to be repaid, what originally looked like the most money may not be the best offer for you and your financial situation.

Digging In: Going Beyond the Bottom Line

Many schools pledge to cover 100 percent of a student’s calculated financial need.

But look closely at the types of financial aid you’ve been awarded, and you may find that these schools are covering part or all of your financial need with student loans that you’ll need to repay.

There are two types of aid that may be included in a financial aid package: gift aid and self-help aid.

Gift aid is money that doesn’t have to be repaid, such as a Federal Pell Grants or institutional scholarships.

Self-help aid refers to financial aid that must be earned, such as work-study awards, or repaid, such as federal student loans.

The “Hidden” Costs of College

Your financial aid award letter may not include expenses like books, transportation, or day-to-day living costs. Make sure your budget for these expenses, if they’re not included in your financial aid award, to get a better idea of what your total college costs will be and how much added expense you may need to cover with additional student loans.

Prioritizing Your Aid Options to Minimize Debt

To help you minimize your student loan debt, prioritize your financial aid options to take advantage of gift aid first, low-cost federal college loans next, and private student loans last.

Private student loans may be able to provide the additional financial assistance you need if you’ve maxed out your scholarships, grants, and federal financial aid, but still have education-related expenses to pay.

Private student loans are credit-based student loans that can cover up to 100% of your education-related expenses. These college loans typically carry variable interest rates and may not offer the same deferment and forbearance benefits you get with federal college loans.

Since federal student loans typically offer more attractive terms than private student loans, you should take always advantage of your available federal financing options first.

Cuomo widens probe of kickbacks tied to student loans

The state attorney general's office has widened the scope of its investigation into conflicts of interest in higher education, expanding its probe of kickbacks in the student loan industry to a broad range of companies doing business on college campuses across the nation.

The investigation is now targeting banks and health insurance, textbook, food services and credit card companies with ties to hundreds of schools, a top deputy to Attorney General Andrew Cuomo told educators and guidance counselors at a Nassau BOCES facility in Westbury yesterday.

For several months, attorneys have been scrutinizing relationships between businesses and schools, and attending conferences of college officials sponsored by companies trying "to get close to financial aid officers," Benjamin Lawsky, special assistant to Cuomo, said in an interview.

The investigation showed "college campuses were becoming a place where big business was realizing it could basically pay its way to get to a captive audience," he said. "They're paying schools millions of dollars a year to make sure the students are indebted to them."

Since starting the initial probe last spring, Cuomo's office has settled with 13 lenders, including the nation's six biggest student loan entities, and 25 schools, among them New York University, Columbia University and Johns Hopkins University.

In May, Gov. Eliot Spitzer signed into law a code of conduct developed by Cuomo's office, prohibiting lenders from making gifts to college officials. Similar national legislation is pending.

Cuomo's office continues to investigate the student loan industry, focusing on lenders who market directly to student borrowers, Lawsky said.

"It's an area of concern," said Stephanie Lapasota, director of guidance at Farmingdale High School, noting that her school's counselors advise students who bring them mailings from financial aid companies.

Lawsky urged educators to encourage students to maximize their federal loans - which tend to carry lower, fixed interest rates - and to think of skyrocketing loans as education mortgages. Non-federal loans have grown more than ninefold in the past 10 years, according to The College Board. The number of undergraduates receiving student loans nearly doubled from 1989-1990 to 2003-2004, according to federal Department of Education figures.