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    Deconstructing The Financial Aid Award Letter

    A financial aid award details all the loans, grants, and other financial aid offered to help pay for school. By understanding this information, you can ensure you borrow wisely.
    Updated: March 10, 2017

    What You'll Learn

    • What information you'll find in an award letter.
    • What types of financial aid may be offered.
    • How to evaluate a financial aid award.
    A person holding a binder with paper.

    So, you or your child has been accepted by one or more schools. Congratulations! Now for the fun part: finalizing the plans for paying for college.

    A financial aid award letter will provide most of the information you need to get started. Be sure to read it carefully. Not every award letter looks the same, but they all cover basically the same information.

    Here are some tips to help you understand award letters and choose the right financial aid package and funding options.

    How To Read An Award Letter

    The first part of a financial aid award letter likely covers the school's cost of attendance (COA). This is the total cost as calculated by the school.

    COA includes the cost of tuition and fees, plus an estimate of other school-related costs like books, transportation, rent, and supplies. The estimated costs can vary significantly for each student, but no one can receive financial aid for more than the amount allotted in the COA. The billable costs are pretty much nonnegotiable, but a student may be able to pay less overall by finding ways to save on those estimated costs.

    The other important component of the financial aid award letter is the award itself. This is a list of award types (grants, scholarships, loans, work-study) the student is eligible to receive. Next to these categories is the amount awarded for each.

    Types Of Aid Listed In Award Letters

    Financial aid uses a language all its own, so here are some definitions to help you make sense of it all:

    Grants: This is money for education that doesn't have to be repaid. If grants are offered, accept them. They are usually based on financial need and could come from the federal or state government, the school, or a nonprofit or private organization.

    Scholarships: This is another type of aid that doesn't need repayment. Schools, nonprofits, and private organizations usually award scholarships, which usually require a separate application. Scholarships can be based on merit—like academics, athletic achievement, or a special talent—or they can be awarded based on financial need.

    Loans: These funds must be repaid unless the student qualifies for special forgiveness or discharge programs. Loans can come from the federal or state government, the school, or from a nonprofit or private organization. Most loans from state-based programs or private organizations require a separate application that can be filled out once the amount of money needed in addition to federal and/or institutional loans is determined. Only accept loans that are absolutely needed, and don't borrow more than the amount necessary.

    Work-study: These funds can be earned while in school, usually by working at a designated job for the school. Work-study is awarded based on financial need and is not applied directly to the balance owed to the school. The student applies for a work-study job and earns a regular paycheck like almost any other job. The only difference is that there's a maximum amount available for the semester.

    Parent PLUS loans: In some cases, Parent PLUS loans may appear on a financial aid award letter as an option to help cover costs. However, even if this is listed on the award letter, the parent or legal guardian must apply for and be eligible to receive a Parent PLUS loan based on his or her credit history. If a parent is approved and winds up borrowing a Parent PLUS loan, he or she is legally responsible for paying it back (not the student). However, if they're denied, the student will be allowed to take out additional unsubsidized loans—but be careful, because this will result in more unsubsidized money to repay.

    If you come across any other financial aid terms that you don't understand, look them up in our glossary!

    How Much Is Really Enough?

    At the bottom of the financial aid award letter is a sum of how much financial aid the student is eligible to receive. This is the chance to decide whether or not all that money is needed.

    We recommend accepting any grant or scholarship money offered, because it doesn't have to be paid back. However, if the entire loan amount awarded isn't needed, some or all of it can be rejected. The school will provide instructions on how to do this right in the award letter.

    It's a good idea to only borrow the amount really needed. If some of the loan funding is declined but more is needed later, it can usually be requested again from the school—as long as it's still within the same school year.

    If you subtract the amount of aid accepted from the school's COA, you should have the remaining amount needed to cover the cost. However, the remaining cost may be higher than the expected family contribution that was calculated based on the Free Application Federal Student Aid (FAFSA) information. If that's the case, the student will have to find other ways to cover the remaining cost by working, applying for other forms of aid like scholarships, or borrowing additional loans through non-federal programs.

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