This year’s college-bound seniors and their families should be comparing their award letters shortly.  It has been delayed due to the FAFSA processing delays.  To help you better understand the college affordability factors, PayForED has created six items to consider when comparing award letters.

The lack of financial transparency regarding the financial award letter is a shortfall in the college process.  This shortcoming is especially true when comparing the financial aspects of this decision.  The lack of financial literacy can be seen in the current student debt numbers, which affect over 46 million people.

College award letters only provide a one-year financial snapshot of the college and are not always in a standardized format.  This process makes it difficult to compare them easily and project each college’s total net cost and debt.  Not being able to project the financial outcome is a significant shortfall.

We at PayForED feel that the proper college financial award comparison needs to include a four-year “WHAT” you will pay and the “HOW” a family will pay for this education.  By using this approach, the transparency of the financial outcome will reduce the risk of excessive student debt.

PayForED’s comprehensive approach helps families analyze each award letter side by side easily.  It simplifies a very confusing and complex problem by standardizing the information.  Our goal is to help families review and clarify the “bottom line” or “net cost” of each college listed on their award letter.

The high school class 2024 will also be the first to face the full financial changes related to FAFSA Simplification.  The current significant financial changes are the elimination of the multi-child college discount and the inclusion of the family business and farm back into the asset portion of the calculation of financial assistance.

Below are the six items a family should review to help improve the award letter comparison and college decision.

Customize Your Cost of Attendance

Every college-bound student should customize their cost of attendance (COA), which includes tuition, housing, meal fees, books, transportation, and personal expenses.  We recommend that families build their own COA during this analysis stage.

Families must develop both the direct and indirect costs of a college.  Direct costs will include tuition, fees, housing, and meal plans.  The indirect costs include books, travel expenses, and personal living expenses.  When creating the direct cost families, you must review each school’s academic major’s fees, room type, and meal plan on the student’s list.

Prices can vary greatly depending on the program, room type, and meal plan selected.   A family may find that some colleges mandate that first-year students take the maximum meal plan, but this can be reduced as the student progresses through school.

You may also want to see how to evaluate the off-campus living cost, especially at the large state school.  Many parents are surprised they are considering signing off-campus leases in October of their child’s first year due to the lack of availability or competitive housing situations.

Understand Each Scholarship List

A critical part of the award letter analysis requires the family to separate the merit and need-based scholarships.  This analysis will enable the family to identify the net cost over multiple years and help project future net costs.  The scholarships are free money given to the student, which directly reduces the fees billed by the college.

A merit scholarship is a financial award given to students based on their academic achievement or talent.  Families must understand the ongoing requirements for maintaining merit scholarships for future years.  These could include a certain GPA or activity, such as community service or athletic activity.  Discussing the scholarship requirements with your child reinforces the importance of maintaining their GPA to retain the financial benefit of the merit scholarship.

The student’s Expected Family Contribution/Student Aid Index (EFC/SAI) calculation and financial need determine a need-based scholarship or grant amount.  If the COA exceeds the student’s EFC/SAI, the student may qualify for a need-based scholarship or grant.  Most colleges do not meet 100 percent of the need.

If you are unsure of the type of scholarship on the award letter, you can contact the college for clarification.  Some colleges will only list it as a scholarship and do not disclose it as a merit—or need-based scholarship.  Understanding the difference can help you make a better financial decision.

Self-Help Money: Loans and Work-Study

Loans and work-study are considered self-help money on the award letter and depend on a student’s financial need each year.  The self-help details are directly related to a student’s EFC/SAI.  Each year, a FAFSA needs to be completed.  The FAFSA will allow the student to qualify for federal direct loans.

The type of federal loans will again depend on the student’s financial need that year.

• Subsidized vs Unsubsidized Student Loans

Identifying the type of student loan you were awarded can be confusing.  When looking at your award letters, you may see only a federal unsubsidized loan for one school, while another school lists both federal subsidized and unsubsidized loans.  Your financial need at each college determines this.

The student’s financial aid needs will vary between schools.  The variance in college cost and the student EFC/SAI will determine the mix of student loans in the financial award.  Most first-year students will typically see a combination totaling $5,500.

• Warning on Parent PLUS loans

Some colleges will list a Parent PLUS loan in the financial award.  This loan is legally the parent’s responsibility.  It can often distort the actual net cost of a college.  When comparing colleges, we recommend removing this amount at the comparison stage as it may distort the analysis.

• Work-Study

Work-study programs offer undergraduates a part-time job each semester in college.  Unlike scholarships and loans, this money will not offset direct college expenses.  The award depends on the student filing the FAFSA form and is awarded based on need.  Work-study programs offset indirect costs such as living expenses and books.

 Projection of the Four-Year Net Cost of College – “Your WHAT”

The award letter provides only a one-year look at the cost of college, which is a shortfall in the process.  It does not offer a projection of the four-year cost and debt.  To make the best college financial decision, a family must understand and project each college’s four-year net cost.  Creating this analysis can be overwhelming and complicated.  There are better approaches than taking the initial award letter and multiplying it by four.

PayForED has college funding software and consulting services that can provide the missing details to help you compare your award letters.  This allows students and parents to make informed decisions.  Families can review their financial position by creating a four-year analysis.  This advice can help a family better identify the actual value of each college and decide what the family will pay through graduation.

 Projecting Student Debt – “Your Customized HOW”

After developing a four-year net cost of college, families must determine how they will pay for these expenses.  This leads us to the next important step, which is the “HOW.”  A family’s “HOW” may include a college savings plan (e.g., a 529), monthly cash flow, tax strategies, and student loans.  After understanding these numbers, students will have a general idea of how much debt they will incur to attain their education.

Often overlooked is the importance of the student loan structure.  The student’s and parent’s debt structure will determine the student’s repayment options in the future.  If done correctly, loan forgiveness can make that dream college more affordable.  By better understanding how to use their financial resources and structure student loans, families will plan better for the future.  With this approach, repayment options will not come as a surprise after graduation.

Colleges promote the total amount of financial aid they provide, creating hope and an emotional tie for students.  Cost and debt are rarely discussed during the application process.  If you better estimate “WHAT” you will pay, you can make informed decisions on “HOW” you can pay this expense.

Most parents need to understand the legal consequences of federal student loan options.  Each student is limited to a certain yearly amount and a lifetime limit.  These federal student loans are the student’s full legal responsibility.  If additional resources are needed, a family may need to obtain a Parent PLUS Loan or co-sign for a private student loan.  In both cases, these loans are directly the legal responsibility of the parent.  These loan decisions could impact the parent’s credit score and possibly their financial future.

The “HOW” is becoming a bigger problem for parents due to the increased cost and the limited debt the student can be approved for.  As a result, people over the age of 50 are the fastest-growing group of student loan borrowers, which is starting to impact retirement planning.  Due to the increasing complexity, financial aid offices can only provide some of the answers you need to make the right decision.

Other Financial Award Letter Factors

Families need to consider other items in their selection process: each college’s retention and graduation rates.  Reviewing the retention gives you insights into the transfer rate for the college.  If a student transfers to another college, most students will lose credits, hence more student debt or tuition at the very least.

Lower graduation rates indicate that students need more time to graduate.  It is essential to discuss the cost associated with not attaining the desired degree in four years and the cost of another year of school.  When looking at the retention and graduation rates, make sure that the data is current.  Always check the year of the statistics given by any institution.

The family needs to evaluate each college and see if their child’s personality will thrive in the environment at that institution.  Be comfortable with the decision.  A state school may be more cost-effective, but you must determine if your child will thrive in a larger learning environment.  The best way to save money is to graduate on time.

Comparing Financial Award Letter Approach Summary

During this period, the emotions and stress of the college decision are high. At PayForED, we make it our job to equip the students and parents for success. By providing easy-to-use comprehensive student loan solutions, student loans can be minimized, and excessive student debt can be avoided. As part of the award letter comparison, we often recommend that students talk to peers who are in college or have recently graduated from that college. It may help in the decision process.

PayForEd’s list of College Funding and Student Loan Advisors (CFSLA) includes experts in both college funding and student loan repayment. They provide a holistic analysis of the problem. Remember, the system’s advice is built on access, not affordability. If it were, we would not have a $1.7 trillion problem.