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How to read your financial aid award letter

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Financial aid award letters are documents from colleges outlining what financial aid is available to you. They’re sent out after you fill out the Free Application for Federal Student Aid (FAFSA), and the details will help you determine which college is right for you.

Each school uses a different format for financial aid award letters, but there are typically a few similarities that you’ll come across. Here’s how to make sense of your aid award packages and how to compare them between schools.

What is a financial aid award letter?

A financial aid award letter is the letter notifying you of the funding a college is willing to offer you. This includes scholarships, school grants, work-study, student loans and more. Financial aid letters may also describe the total cost of attendance for the year, including tuition, fees and room and board.

In order to receive this aid, you’ll need to fill out the FAFSA. When you submit the form, you’ll list colleges that you’re interested in, and colleges will use the information on your FAFSA to create your award package — though you’ll receive award letters only from the schools that accept your application.

Your financial aid award letter is typically sent out along with your college acceptance, but the timeline can vary based on each school’s aid process and when you submitted your FAFSA. While you need to apply for a school only once, you need to reapply for the FAFSA every year to determine your aid eligibility.

How to read your financial aid award letter

Here are some key terms to look out for when reviewing your financial aid award letter:

  • Expected family contribution (EFC): Your EFC is an estimate of your family’s financial resources based on income, family size, assets and more. The U.S. Department of Education will calculate your EFC using your FAFSA and will use that number to determine how much need-based aid you’re eligible for.
  • Estimated cost of attendance (COA): The estimated COA is what the university estimates that you’ll spend over the course of one academic year in tuition, fees, room and board, books, supplies and more. This may be listed as your “direct cost.”
  • Gift aid: Gift aid is the financial aid that you won’t be responsible for paying back. This includes grants and scholarships. Work-study programs are sometimes included, but they’re often also called self-help aid because they require you to work.
  • Student loans: Student loans are financial aid that you’re responsible for paying back in a certain amount of time. Your letter will list the maximum amount you can borrow and what your interest rate will be if you do.
  • Outstanding balance: The remaining balance is the cost per academic year after all of the financial aid is accounted for. This may be listed as your “net cost.”

How financial need is determined

Your financial need is determined by subtracting your EFC from the total COA of the school, which schools are required by law to disclose. After the Department of Education determines your EFC, the school will use that to calculate your level of financial need.

Your financial need will be different at each school, since schools have different COAs. Let’s say your expected family contribution is $30,000. If School A has a COA of $40,000 and School B has a COA of $55,000, your financial need would look like this:

  • School A: $40,000 (COA) – $30,000 (EFC) = $10,000 (financial need)
  • School B: $55,000 (COA) – $30,000 (EFC) = $25,000 (financial need)

Keep in mind that even if you have more financial need at one school, you won’t necessarily be offered enough financial aid to cover that amount. Available need-based aid varies by school, so you could be offered a certain amount at one school and a different amount at another.

How to compare financial aid packages

Every school calculates your financial aid differently. Here’s what you need to look at to get an idea of what each package is offering.

Loan details

If you’re planning on taking out student loans, look at how much you’re able to borrow and what the long-term cost will be. Your award letter will tell you the maximum amount you can borrow for the academic year, the interest rate and upfront loan fee, the grace period, the repayment terms and more.

You’ll also be able to see whether you qualify for subsidized loans, which is where the federal government pays your interest while you’re in school and during your six-month grace period after graduation and future deferment periods.

Gift aid details

If you’re eligible for scholarships and grants, you’ll want to know how long these gifts will last. You’ll also need to know if they renew automatically each year or if you’ll need to reapply, and whether you need to meet any responsibilities to keep the gift aid.

Knowing which school offers the largest amount of gift aid is particularly important, because you generally don’t have to repay scholarships and grants. When you look at your remaining balance after all financial aid has been disbursed, which one has the lowest balance, and can you afford to pay that balance annually over four years?

Work-study availability

Eligibility for work-study programs doesn’t necessarily mean that you’re guaranteed to find a job on campus. But if it’s in your award letter, you’ll want to know how many hours you’ll need to work every week and what you’ll be earning.

Consider these numbers alongside your list of courses and determine whether working that much is feasible.

How to accept a financial aid award

Once you’ve carefully compared all of the details and have decided which school you’re going to attend, you need to accept your aid offer. The details for how to accept your package, as well as acceptance deadlines, will typically be on the letter.

If there isn’t a deadline or instructions listed, call your school’s financial aid office as soon as possible for more information and guidance.

You don’t have to accept all of the aid listed. While there’s no downside to accepting scholarships or grants, think carefully before accepting student loans or committing to work-study. Private organizations also offer scholarships and grants, and applying to those can further bring down your costs.

If you do choose to take out student loans, remember that you can request a lower amount than what’s listed on your financial aid award letter — it’s best to borrow the minimum amount that you truly need.

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Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Student loans editor