Capstone College and Career Advising

Understanding financial aid packages

February 3rd, 2015 by

The cost of a college education keeps rising, and so does student debt. Nearly 70 percent of college graduates leave school with some debt, according to a study released by The Institute for College Access and Success in late 2014. And of those indebted graduates, the average debt is now approaching $30,000.

So it’s critical to carefully review the financial aid package being offered by any school that accepts your student. This offer spells out how much money you will need to come up with in order to pay for one full academic year.

And if your student is considering more than one offer, it’s critical to be able to objectively compare the packages. Sometimes a private school that you thought was out of reach may offer so much in scholarships and aid that it is actually more affordable than a public university. But I find that most parents have many questions about the financial aid process.

Who gets financial aid packages, and when will I see one? If you filled out the FAFSA, the college’s financial aid office will put those numbers into their own set of formulas and create a package, or award, that will cover all or part of your financial need for a year. You should get this letter by March or early April.

What’s in the package? The financial aid offer should break down the cost per semester for not just tuition and fees but other costs including room and board, books, personal expenses, and travel. Let’s say that those costs add up to $15,000 per semester, or $30,000 for a full year.

The letter will then list various sources where that money will come from, including your Expected Family Contribution (EFC), grants, scholarships, work-study, or loans. (The Expected Family Contribution is calculated on the basis of your FAFSA application.)

For instance, an offer might list a $5,000 Pell grant and a $2,000 merit scholarship per semester. The balance—$8,000 per semester—is your responsibility. The letter may list loans that are available to pay this balance.

How do I compare loans? This is where it gets tricky.Loans may be subsidized by the federal government, or they may be unsubsidized. A subsidized loan’s interest rate is paid for by the college while you are attending (and for up to six months after you leave). Unsubsidized loans do not require families to demonstrate need but do require you to pay the interest during all periods. Make sure you understand the terms, conditions, interest rates, length of the loan, and whether the loan is a parental or a student obligation. Take a hard look at the monthly payment—can your family afford to make this payment for the life of the loan?

How do I respond to this offer? Your package should have instructions, including a deadline for accepting the offer and how the money will be dispersed. The universal deadline is May 1, but remember that some aid is dispersed on a first-come, first-serve basis, and that if you accept late in the game, some of the money may be gone. You do not have to accept the entire package. For instance, you may choose to accept scholarships or work-study, but pass on an unsubsidized loan.