This year’s college-bound seniors and their families should be comparing their award letters shortly.  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 is evident in the current student debt numbers, which affect over 45 million people.

College award letters provide only a one-year financial snapshot of the college and are not always standardized.  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, especially this year due to the new federal loan limit changes.

At PayForED, the proper college financial aid comparison should 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.  With new changes to loan limits, this planning is more critical for making the right decision.

PayForED’s comprehensive approach helps families easily analyze each award letter side by side.  It simplifies a complex, confusing 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 of 2026 will be the first to face the financial changes resulting from the new federal loan limits under the OBBB.  It is the largest college funding change in 20+ years. The major financial changes are the elimination of the Grad PLUS loans and lower fixed loan limits for Parent PLUS loans.

Below are the six items a family should review to help improve the award letter comparison and make the right 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 must review each school’s academic majors’ 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 off-campus living costs, especially at a large state school.  Many parents are surprised to find themselves considering signing off-campus leases in October of their child’s first year due to limited availability or competitive housing.

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 Student Aid Index (SAI) calculation and financial need determine the amount of a need-based scholarship or grant.  If the COA exceeds the student’s SAI, the student may qualify for a need-based scholarship or grant.  Most colleges do not meet 100 percent of the need.  Need-based scholarships are not guaranteed in future years and could change based on the student’s need.

If you are unsure of the scholarship type on the award letter, you can contact the college for clarification.  Some colleges list it only as a scholarship and do not disclose whether it is merit- or need-based.  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 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 which loan type is available.

The student’s financial aid needs will vary from school to school.  The variance in college costs and the student’s 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.

Another issue facing this year’s parents is the new loan cap on the amount parents can borrow under the Federal Parent PLUS loan program. Newly enrolled students, Parent PLUS loans are limited to $20,000 per year and a lifetime limit of 65,000 per child.  These new loan limits are critical in your college decision this year. If this is not properly analyzed, many families will need to have a blend of private and federal loans.  This will rais the cost of college and payments at graduation.

• Work-Study

Work-study programs offer undergraduates a part-time job each semester.  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 view of the cost of college, which is a shortcoming 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.  Due to the new loan limits, multiplying the initial award letter by 4 is not recommended.

PayForED offers college funding software and consulting services to 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.  What is different this year is also projecting your payment at graduation since many students will have a more complex funding outcome.

 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: 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 students’ and parents’ debt structure will determine the students’ future repayment options.  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 more effectively for their outcomes.  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 can 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 affect the parents’ credit scores and possibly their financial futures.

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 50 are the fastest-growing group of student loan borrowers, which is starting to affect 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 factors in their selection process, such as each college’s retention and graduation rates.  Reviewing retention gives you insights into the college’s transfer rate.  If a student transfers to another college, most students will lose credits, which can lead to more student debt or, at the very least, higher tuition.

Lower graduation rates indicate that students need more time to complete their degrees.  With the new Parent PLUS loan limits, the cost will be higher. 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 reviewing retention and graduation rates, ensure the data is current.  Always check the year of the statistics given by any institution.

The family needs to evaluate each college to see whether their child’s personality will thrive in that institution’s environment.  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 loan burdens can be reduced and excessive student debt 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 $1.6 trillion problem.