Paying for College

How to Decipher a Financial Aid Letter

Some colleges blur the lines between loans and grants.

Figuring out how much college will cost can be complicated. College websites and promotional materials publish sticker prices, which can easily top $65,000 a year at a private college or $25,000 a year for an in-state public school. But most families will pay far less. Need-based financial aid awards often cut a school’s sticker price in half for families who qualify. And non-need-based aid further reduces the costs for stellar students.

Still, how much any financial aid award will shave off your bill remains a mystery until after your child has been accepted. Then, within about two weeks, you’ll receive a letter summarizing the types, sources and amount of financial aid being offered. Many of the letters, however, are missing important information or make financial aid awards appear more generous than they are.

Lawmakers are considering proposals that would standardize the letters and require schools to show cost and aid information in a more consumer-friendly way. Legislation that includes new rules for financial aid letters is likely to pass this year, says Mark Kantrowitz, publisher of SavingforCollege.com. But even if that happens, changes to the award letters won’t reach families for another one to three years.

Examine the costs

Start by calculating the full annual cost of attendance for each school that has accepted your student. You can’t always take the listed costs at face value because colleges often exclude from award letters some expenses or underestimate how much students will spend on things such as textbooks and transportation. Use the highest estimated book expense. You should also adjust transportation expenses for each school to reflect how far—and how often—your student will likely travel for school breaks. Then add up the cost of tuition, fees, room and board, books and supplies, and transportation to determine the sticker price for one year.

Most colleges group different types of financial aid under the same umbrella. It can be difficult to tell which items are scholarships and grants and which are loans. Ask the financial aid office if the award is likely to shrink in future years, or visit www.collegenavigator.gov to see how the average awards for first-year students compare with those of all undergraduates.

Calculate and compare

To see how much each school will cost your family, subtract the gift aid your student was awarded from the estimated cost of attendance. This is the amount your family is expected to contribute from savings, income or loans to cover costs for one year. If your student has been accepted at more than one school, make your own chart to compare each school’s costs and offers, or use the tool at www.consumerfinance.gov.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Can't Sleep at Night? Consider Getting Checked Out By a Doctor
health insurance

Can't Sleep at Night? Consider Getting Checked Out By a Doctor

Older adults are more likely to suffer from sleep disorders, such as insomnia and sleep apnea. Left untreated these conditions can have dire consequen…
May 26, 2021
Midyear Investing Outlook: Where to Invest Now
Kiplinger's Investing Outlook

Midyear Investing Outlook: Where to Invest Now

After a powerful start, stocks will grind higher in the second half of 2021. But watch out for curveballs.
May 23, 2021

Recommended

What You Need to Know about College 529 Savings Plans
529 Plans

What You Need to Know about College 529 Savings Plans

Do you know how much you’re able to contribute or what the funds could be used to pay for? How about how contributing affects your taxes? Check out th…
April 14, 2021
How to Pay Off $130,000 in Parent PLUS Loans for Just $33,000
Paying for College

How to Pay Off $130,000 in Parent PLUS Loans for Just $33,000

Meet Nate. He took out $130,000 in Parent PLUS loans for his kids. The standard repayment plan will cost him over $170,000. But some smart strategizin…
April 12, 2021
Brandon Copeland: Should Student Athletes Be Paid to Play?
Brandon Copeland

Brandon Copeland: Should Student Athletes Be Paid to Play?

During the height of March Madness, Kiplinger.com contributing editor and NFL linebacker Brandon Copeland and Casey Schwab, founder and CEO of Altius…
March 29, 2021
When Choosing Funds for Your College 529 Plan, Don’t Make This Mistake
529 Plans

When Choosing Funds for Your College 529 Plan, Don’t Make This Mistake

Age-based funds make sense for some retirement savers, but they rarely make sense for college savers, in my opinion. Here’s why. This article is part …
March 13, 2021