Prospective students are facing confusion on the total cost of college due to the absence of universal terminology and formatting on the financial aid award letter they receive.  This lack of clarity on the Financial Aid Award letters occurs because a standardized letter is not mandated by the Department of Education.  It makes it confusing to compare colleges and determine the true net cost of each college and the debt that will occur.

History

In the school year 2013-2014, the Department of Education unveiled the Financial Aid Shopping Sheet and asked institutions to adopt this format to notify students about their financial aid package. The goal of this consumer based template was to have institutions universally use the same format and terminology, resulting in increased clarity and transparency for families trying to figure out the cost of college.  Unfortunately, institutions are not required to use this template for prospective students when detailing their costs and financial aid. 

According to the New America & UAspire study, in the last 6 years since the introduction of the College Shopping Sheet, less than half of the colleges and universities that receive federal financial aid have incorporated this standard form into their award letter format.

College Financing Plan

This year, the Department of Education is having a beta test protocol called the College Financing Plan, which was developed as an improvement for the College Shopping Sheet.  The new name of the sheet allows students to see college as a financial transaction that may involve loans at the end of the four years.  Formal adoption of this template will be next year and the Department of Education is again hoping that institutions will use this as a guide when sending out their award letters.

Click to get a snapshot of the government’s College Financing Plan.

Line items on the Award Letters

To really understand the award letter, we suggest families review and understand the cost, scholarships and loans that appear on the award letter.  If you have any questions, go back to the financial aid office of that institution to get answers.  To help you get started, we have broken down what may appear on a financial aid award letter and discuss what it means.

 

Cost of Attendance

Ideally, families would like to receive an award letter similar to the above College Financing Plan Sheet.  To give you a quick overview, we will review the financial meaning of these line items.  The first part of the award letter should list the cost of attendance breakdown.  This means the estimated cost for tuition, fees, room and board.  This is the amount that will show up on your University bill.

An institution may or may not list the estimated book expense, transportation or personal expenses.  Depending on the distance and location of the college, this could be a significant cost. These items will not show up on your University bill but are part of the total cost of attendance.

Grants & Scholarships

The next section of the award letter will list any gift aid that the student may be receiving. This type of gift aid may come in either the form of grants or merit-based scholarships.  Grants are based on financial need and determined as a result of completing the FAFSA. Merit-based scholarships are admissions or departmental scholarships and are based on test scores, GPA, or special skills.

If a student has a grant or scholarship listed on their award letter, it is important for the family and the student to understand the details.  If income changes dramatically or other siblings will be attending or graduating during the four-years, it could be reflected in need aid amounts.  A first-year award is not always reflective of the future net cost that is awarded each year.   Each year the family will be submitting a FAFSA which determines the amount given to the student.  Also, many merit-based scholarships have requirements that need to be followed such as GPA and course level requirements.

Work Study & Loan Options

Work-study may also be listed on the award letter.  Federal work-study is a way for undergraduate and graduate students with financial need to earn additional money to pay for school.  Work-study may be listed as a specific allocated amount but does not mean that the student automatically will get that money.  The student will need to find a work-study-eligible job and then work enough hours to earn that amount.    

The work study amount will not offset the amount owed to the college or be deducted from the bill.  It is money that is earned to offset the cost of books and personal living expenses. 

Student Loans

The last section of the award letter details the student loan options available through the federal government and as a result of the family and student filling out the FAFSA.  The student could receive Direct Federal loans either subsidized or unsubsidized and the parents could receive Parent PLUS loans. Families and students often see the net price of the award letter and many do not realize that the loan amounts which need to be repaid have been deducted from the cost of the tuition.

It is important that the college bound student understand the loan type, interest rate and who is responsible for the loan repayment.  Many students do not understand the long-term financial consequences of borrowing money for college.  Another foreign concept is accrued interest and loan amortization which depending on the loan will be applied.

Program Short Coming 

The College Financing Plan is an improvement for families trying to get more clarity and transparency on the award letter comparison.  It does spell out what a student receives on their award letter yet a major short coming is that not every college may institute this format into their process.

The other major drawback to this new format is the family will still only see the cost of attendance for one year.   A one-year projection can be misleading as need aid could change depending on the circumstances of the family, such as family’s sibling timing or the type of scholarship given to the student.  Under the current process, colleges only provide one year of financial information.  The current transfer rate is approximately 35% and one of the leading causes is financial aid.

A four-year calculation is important to families with multiple children as a college planning tool because it reviews how the EFC number changes and enables families to see a snapshot of possible tuition adjustments during future years.  By not being able to project the final cost and debt, we will not be able to fix the student loan problem.

Conclusion

We believe this new proposed College Financial Plan will help parents and students evaluate award letters more effectively.  It is still a long way off for families to find their best college value.  Families need an approach that is custom and has a four-year projection. To solve the student debt problem, we must help students and parents envision the financial outcome of pursuing a college education.  The PayForED App and College Cost Analyzer are steps to creating this customized analysis for families.  Through a review of their customized financials families can make informed decisions not just at the selection stage but also during and after college.