Reading Your Financial Aid

When you receive your acceptance letter at a school, you'll also receive a financial aid award letter if you applied for and qualify for aid. This award letter details all the costs of attending that school as well as the amount of financial aid you are receiving. Not all schools use the same language in their financial aid award letters, which is why it's important to discuss any confusion with your school's financial aid office. Don't hesitate to reach out both during the application process (such as when filing the FAFSA and CSS) and after, when you're reviewing the award letters. 

 

Direct and Indirect Costs

On the award letter, you'll notice there are two categories of costs: direct costs and indirect costs. Direct costs are what most people think of when they think of the cost of going to college: tuition, room, and board. These are costs directly required for your attendance at the institution—what is billed to your family and paid to the school. But oftentimes, going to college incurs additional costs beyond just tuition, room, and board. Colleges want to provide estimates for these additional costs for families so they don't come as a surprise. These additional costs are called 'indirect costs,' and they're often smaller personal and educational expenses that can be adjusted depending on the student's particular spending habits. For example, things like toiletries, transportation, course materials, entertainment, and other personal expenses may be somewhat unavoidable, but no two students are going to pay the same price for them because each student has different needs and personal spending habits. 

 

While it's good to take into account the school's estimates for what they think you will spend on these indirect costs, it's also important to keep in mind where you can save on them. For course materials, for example, you may end up spending less than what is written on your award letter if you're smart about where you get your textbooks and other school supplies. If you plan on decorating your dorm, think about whether you'll be bringing in most of your items from home or purchasing decorations once you get to school. 

 

Essentially, direct costs and indirect costs add up to a metric called "cost of attendance," which is the school's estimate of how much in total it costs to attend the institution: the actual costs billed to the school (direct costs) plus any costs associated with attending college (indirect costs). You can't control the direct costs of an institution, but you can at least influence the exact amount of indirect costs. 

 

This distinction between direct and indirect costs is an important one to make as the difference between the total direct costs and the total amount of scholarships and grants received is the amount your family must pay to the institution directly (this is what is billed to you). If your direct costs equal the amount of scholarships and grants received, then your family doesn't pay anything. Notice that it's not the entire financial aid package that reduces the amount you pay to the school: it's only the scholarships and grants. Scholarships and grants are free money that the school or some other institution provides for your education, and they never need to be paid back. But financial aid packages don't only include scholarships and grants, oftentimes they also include other items like work-study and loans. 

 

Understanding work-study

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Different schools use work-study differently, but usually, the amount listed on the award letter is only a recommendation/estimate from the school. Essentially, if you see work-study on the award letter, the school is recommending that you pick up a part-time job during either the school year or the summer to help pay for some of either your cost of attendance. Many campus jobs are available at each school, and oftentimes these jobs are really great because they are geared toward students, so they likely won’t assign you many hours since the school doesn’t want work to distract you from your studies. Having work-study in your aid package means that when applying for campus jobs, your application will be prioritized over the students who don’t have work study in their aid package (or didn’t qualify for aid at all). 

 

If you earn a lot over your summers, you could potentially get away with not working during the school year. Also keep in mind that because the amount of work-study is only a recommendation, and oftentimes calculated based on the school’s estimates of indirect costs, you could potentially not work at all if you have some other means of covering your indirect costs, like a family member who sends you money. 

 

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Understanding loans 

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When you provide your family’s financials to the school so they can calculate your aid package, they calculate something called the Expected Family Contribution (EFC) which is how much they can reasonably expect your family to pay for your college education. The difference between your EFC and the school’s direct costs is called ‘demonstrated need.’ This is the amount of money that your family needs for you to attend that institution. To help cover some of that demonstrated need, you may need to look to loans to help cover the difference. If your school includes loans in your financial aid package, that is the amount that they are willing to lend you. Government- and school-issued loans are the most ideal type of loans because they don’t accrue interest while you are a student. Third party loans issued by institutions such as corporations often can’t guarantee the same terms, which leads to your student debt snowballing and ending up with far more debt than you started out with. It’s generally safest to avoid these external loans and try if at all possible to only take out loans with the school and government (such as Stafford loans).

 

Be careful about loans, though, in financial aid award packages because they can make packages seem more attractive than they truly are. A school might say that it meets 100% of your demonstrated need, for example, because its financial aid package equals all of your demonstrated need. But don’t forget that financial aid packages aren’t entirely just free money for many people: only the scholarships and grants portion is money that is being given to you. Loans may help you pay for college at the moment, but they do need to be paid back, often with interest, and work-study is money that the school is assuming you will earn. Thus, these two financial aid items can inflate the actual amout of ‘free aid’ that you think you’re receiving, so be careful when interpreting your letter: ‘financial aid’ is not interchangeable with ‘scholarships and grants.’ 

 

It is best when a school meets 100% of demonstrated need without loans, as this means the majority of their aid will come in the form of scholarships and grants (they can only expect you to make so much from work study). 

 

Net price calculators 

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The total cost of attendance can be estimated from the school’s net price calculator which can often be found on the school’s website or by Googling, but keep in mind that these are estimates only, and there can be quite some variation between the estimate given and the actual award letter you receive. 

Ultimately, use your own judgment to determine whether it's worth it to apply to a school where you may not have received the most desirable estimates from their net price calculator. They can provide you with a rough estimate, but always take their estimates with a grain of salt since you aren’t providing them with your entire financial background the way you are with the FAFSA/CSS. 

 

2. Requesting Revaluation of your Financial Aid Package 

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If you feel that the financial aid package you received is inadequate, it’s possible that it may be adjusted if you talk with the school’s financial aid office. If any new financial circumstances have occurred since you filed your FAFSA/CSS and the school isn’t aware of them, be sure to bring them up in your conversations so that their office can gain a greater understanding of your family situation. For example, if your house burns down, a family member gets sick and incurs a lot of medical bills, or a parent loses a job, all of these scenarios could potentially alter your aid package in your favor (not an exhaustive list). When in doubt, just reach out. The worst they could say is no, but you could miss out on the possibility of gaining a better aid package if you don’t try. 

 

It’s also possible to negotiate with financial aid when you are deciding between multiple schools and want to attend one particular school but another school is giving you more aid. You can let them know that you would really like to attend their school, but the cost is prohibiting you from doing so, and that you may have to attend the other school because they are giving you more aid. Schools want students who are passionate about their institution, so they can sometimes be willing to increase their aid package to either make their institution more attractive or even match the other school’s aid. 

 

There are many selective private schools that meet 100% of demonstrated need, which means that in theory, they should be providing the same amount of aid to you since your EFC shouldn’t vary by much from school to school. But in practice, because each school has their separate methods of calculating financial aid packages, your aid at these schools may vary by thousands of dollars. But because these schools all make a promise to meet all of your family’s demonstrated needs, negotiating with them may lead to increasing your financial aid package or even obtaining a matched award. Harvard and MIT, for example, both are examples of these private schools that meet 100% of demonstrated need. If you were accepted at both institutions but received less financial aid at the one that you would like to attend, you could tell that school that the other institution is offering you more aid and you may have to attend that one instead. There’s a good chance that the school you’d like to go to would be willing to adjust their aid package to allow you to attend their institution. Schools love to have talented students attend their institutions, and these private schools have very large endowments that enable them to give generous aid, so when in doubt, just ask and see what happens! 

 

The downside to this tactic is that because you only receive a financial aid award after you are accepted to a school, you can only use this tactic if you are accepted at multiple schools. If you are only accepted at one institution that meets 100% of demonstrated need, then you have a lot less bargaining power. Also keep in mind that this ‘matching’ of financial aid generally only works better when it involves schools that already have similar financial aid policies. That’s why it tends to work better with schools that promise to meet 100% of demonstrated need, for example. But if you received more aid at your state school than at Harvard, then Harvard may not be persuaded to increase their aid because state schools don’t meet 100% of demonstrated need—most of their reduced cost comes from state grants and in-state reduced tuition as well as merit-based scholarships. Always be sure to research the financial aid policies of the schools you’re applying to, and if you’re unsure of anything, feel free to reach out to their financial aid offices to get clarification.