Borrowing for College: Advice about Loans for Students and ParentsSuzanne Shaffer
Financial aid can be one of the more confusing aspects of the college admission process. Most students hope to receive some form of financial aid to help pay for the high cost of college. For many families, the financial aid a college offers can make or break their student’s decision to accept an offer of admission.
Unfortunately, no two award letters are created equal. It would certainly be helpful if they were, but every college has their own format and it’s often hard to compare one to the other. To compare awards and make a wise financial college choice, you need to zero in on a few pieces of critical information.
When a student completes the FAFSA (Free Application for Federal Student Aid) and is accepted for admission by a college, the financial aid process begins. Shortly after the offer of admission is received, a student should receive a financial aid award letter from the college.
In some cases, schools will offer merit aid to a highly-qualified applicant even if the student didn't apply for financial aid by submitting the FAFSA.
Many colleges include federal work study in the financial aid package. Students who qualify for work study can apply for these part-time jobs and use the funds (which they receive directly in the form of paychecks) to offset their college expenses.
Not all award letters include the above components, so the way the schools present information and how you interpret it is extremely important. For example, some colleges list room and board separately, not including it in the Cost of Attendance, which makes the financial award appear relatively larger than it actually is.
The best colleges use the Financial Aid Shopping Sheet created by the U.S. Department of Education. This sheet breaks the award down into segments and includes all the information you need to evaluate the award. If a college doesn’t use the Shopping Sheet, you can print out your own copy and transfer the data they provide.
If you any have questions about an award letter, call the college's financial aid office.
Lurking between the lines in these award letters are practices some colleges use when offering admission and financial aid.
Front loading happens when colleges make generous financial aid award offers to applicants as a lure to attend but reduce grant and scholarship (free money) aid in subsequent years. To avoid being victims of front loading, be sure to ask these five questions:
Gapping happens when a college makes an offer of admission but doesn’t offer enough financial aid to cover the difference between the Cost of Attendance and your Expected Family Contribution (EFC). Quite simply, if your student is at the top of a college's applicant pool, they will receive the aid required to attend. If not, your student may be gapped.
Not all schools engage in gapping. There are a number of colleges that pledge to meet 100% of a student's demonstrated financial aid. Other schools compete for desirable applicants with generous merit aid packages; this is known as "discounting."
Colleges may pad the financial aid offer with federal student loans, federal parent loans and work study. The best college aid is in the form of scholarships and grants. If the difference between what you can afford (your EFC) and what the college offers is padded with loans, the college is gapping your student.
The lesson for parents and their college-bound students is to carefully scrutinize and question each item in their financial aid awards before comparing one college’s offer to another. It may turn out that freshman year is most affordable at one school but, when the total years until graduation are tallied, another choice would be the better long-term bargain.
First, determine the school’s real Cost of Attendance. It should be easily seen on the award letter. If not, you can find it on the College Board’s site BigFuture. Type in the name of the college and the search provides the pertinent information.
Next, look for the free money (grants and scholarships). Free money can come from the federal government, state government and the college itself. This is money you won’t have to repay.
Regarding loans, the letter should only list student loans, not parent loans. Remember that loans must be repaid so check loan repayment calculators before accepting them. It’s important to note that your student does not have to accept any loans offered in order to accept an offer of admission.
With these numbers in hand, you can take the true Cost of Attendance and subtract the grants, scholarships and loans to determine what you will have to pay for your student to attend the college. Remember, don’t be fooled by the loans — the best aid packages are heavily weighted with grants and scholarships.
To see a step-by-step evaluation of an actual award letter, visit The College Solution Blog: How to Decipher a Financial Aid Letter. Financial Aid expert Lynn O’Shaughnessy walks you through the process and explains how to decide if a college is offering your student a good award.
Every family’s financial situation is unique, but we’re all in the same boat as we agonize over these award letters. After being accepted to a dream college, the financial aid offer can change the final college choice dramatically. My recommendation is for you and your student to compare the colleges side by side. Affordability is important, but so is your student’s overall happiness. Strive to balance what works best for your student and for the financial health of your family.