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  • Writer's pictureSawyer Earwood, CEP

How To Understand Your Financial Aid Award Letter

Updated: Mar 24, 2023

Let's rewind the clock. The year is 2011, most of the headlines are a mix of natural disasters, mass shootings, revolutions in the Middle East, and quite a few notable deaths. Narrowing our scope a bit, we zoom in on the small kitchen table in an unsuspecting house in southern Alabama. The month is March, a young 1st-Gen college student sits at the table with his mother, financial aid award letters neatly stacked like a game of solitaire, and the air is thick with stress and confusion. If this were a comic strip, overbearing words would crowd the background: scholarships, grants, loans, bottom-lines, work-study, cost of attendance, payment plans, FAFSA, CSS. What do all of these terms mean? Why is this so overwhelming? Why can't the colleges just make the cost straightforward and transparent?

Fast forward to 2016, that student is now sitting in an admission office looking at the same kinds of financial aid letters from the other side of the desk. He's an admissions counselor, he loves his job, and although he is still "wet behind the ears," he is ready to make sure that as few families as possible feel that same insurmountable stress he felt five years prior.

Ok, now that our history lesson is complete, let's talk about one of the most daunting pieces of the admissions process: financial aid. Financial aid is a term so encompassing that it is impossible to cover all of it in one post. As a matter of fact, we've covered several financial aid topics in other blog posts from Tuition Exchange Programs to Completing The FAFSA. Today though, I wanted to go through a breakdown of what you can expect to see in a typical financial aid award letter. Most importantly, I want to take the time to explain some definitions that sometimes go unexplained.


Direct Cost vs. Cost of Attendance

Before we can breakdown the college's financial aid award letter, we have to talk about the fact that there are often multiple "bottom-lines" that families have to decipher. Here are a few helpful terms:

  • Direct Cost: This is the cost that a family will have to directly pay to the college/university in order to attend. It is commonly broken down into subsections:

    • Tuition, Room & Board (sometimes separated), Misc. Fees (usually involving class, registration, lab, or activity fees).

      • Estimated Cost of Attendance: The Cost of Attendance is the Direct Cost of attending a college plus a few additional "expected" expenses that families should be prepared to cover. These expenses often exist outside of a college's control, but are estimated based off of calculations made by the Office of Financial Aid. Institutions are federally required to have these on their financial aid awards. The most common examples are:

    • Books, Transportation, and Personal expenses. Each of these can vary depending on the student, the institution's location, the student's home location, the student's major, and other factors.

So now we have at least a fundamental idea of the difference between Direct Cost & Estimated Cost of Attendance. In a nutshell, the difference is the amount you HAVE to pay directly to the institution to attend and the amount you SHOULD EXPECT to pay to to exist outside of classrooms and dorms in addition to the Direct Costs.


How to Decipher the Financial Aid Award Breakdown

So what should a straightforward, transparent, and (dare I say) ethical financial aid award letter look like? Fortunately, one of our student volunteered their award letter to use for this blog post. I'll add some notes below.

Section A: The letter starts at the top with the "Estimated Cost of Attendance" which factors in Direct Costs and those federally required Estimated Other Costs.

Section B: This is where we see the term "Gift Aid" which essentially means any financial aid that does not have to be paid back (i.e. Grants/Scholarships).

Section C: Section C is where things can start to get confusing for families, because we see a term like "Cost" or "Bottom-line" but we are only halfway through the letter. This is the Estimated Cost of Attendance BEFORE applying any Need-Based Aid options. This is sometimes called the Bottom-Line Before Loans & Work Study.

Section D: Now that the family has an idea of what the cost is BEFORE applying any Need-Based Aid, we now get to see a collection of any "Loans & Work" (Need-Based Aid) the student/family should expect to receive. Need-Based Aid can vary greatly from school to school, but almost every school will have federal aid from the FAFSA. Depending on a family's income, they might not qualify for Need-Based Aid.

Section E: We arrive at the final bottom-line, "Estimated Remaining Cost." Here we take the "Estimated Cost of Attendance" and subtract all "Gift Aid" (Grant/Scholarships) and "Loans & Work" (Need-Based Aid) applicable in the student's aid package. This is also sometimes called the Bottom-Line After Loans & Work Study.


Sticker Price? Discount Rate? What Are Those?

Sometimes students and families ask about the terms Sticker Price & (Tuition) Discount Rate, although truthfully many families aren't aware of these terms in the discussion of Financial Aid for college.

  • Sticker Price generally indicates the cost to attend a college. Depending on the college, they might refer to the Sticker Price using the Direct Cost figure or the Estimated Cost of Attendance. Using our example above, one could say the Sticker Price to attend USC is $59,260 OR $80,601.

  • Discount Rate refers to an internal number/percentage that admission offices are using to make fiscally responsible decisions while reducing the cost of attendance for students via Scholarships, Grants, and some Need-Based Aid. Each office utilizes different calculations, but this can most commonly be seen as Total Gift Aid divided by Tuition & Fees. Using the example above, we can see that the student has a 71.9% Discount Rate.


The Takeaway

There you go, a step-by-step breakdown of a financial aid award letter with some terminology clarification to help you through these trying times. The most important thing that you should remember from this article is that there are four factors that determine how much you "pay" for a college education: Direct Cost vs. Estimated Cost of Attendance & Bottom-Line Before Loans & Work Study vs. Bottom-Line After Loans & Work Study.

Feel free to reach out with additional questions or topics that you would like to learn more about, and we'll write a blog post on it!

With all my support,

Sawyer Earwood

Independent College Counselor

Co-Founder of Virtual College Counselors

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