Interpreting financial aid award letters

Interpreting a college’s financial aid award letter can be tricky business. A letter that says, “Congratulations! You’ve been awarded $15,000 in financial aid” isn’t necessarily telling you that you’re getting a $15,000 discount off the sticker price. Not all financial aid is free money—financial aid can also include loans (which need to be paid back) or work-study for the student. So a family who smartly wants to compare the costs of the colleges that accepted their student must first decode the award letter.

If you have a financial aid award letter in hand, here’s how to answer the question of how much that college will actually cost for your student to attend next year.

1. Calculate the total amount of grants and scholarships in the financial aid award.
Grants and scholarships are free money that doesn’t need to be paid back. The bigger this number, the better.

2. Find the college’s total “cost of attendance.”
The cost of attendance is the sticker price. It’s the estimated cost of attending one year at this particular college, including tuition, room and board, and estimated travel expenses. If you do not see the actual words “cost of attendance” or the acronym “COA” on the letter, it means the college has neglected to include it (this is inexcusably common, by the way). Go to the financial aid section of the college’s website to find it. Or call the financial aid office and ask.

Now, subtract the amount of grants/scholarships from the total cost of attendance. That’s the net price. It’s what you’ll need to pay out of pocket to attend that school next year.

Beware: “Net cost,” which includes loans in its calculations, is not the same thing as “Net price.”

I’m not a numbers guy (as evidenced by the fact that I majored in English and history in college). So the excellent, and far more detailed, advice on this topic that Mark Kantrowitz shares here made my head spin. But if I were trying to interpret a financial aid award letter, I’d acknowledge how important it is that I get this right. And I’d follow Kantrowitz’s instructions to the (financial aid award) letter.