The Student’s Guide to Evaluating Financial Aid Award Letters

Learn how to read your financial aid award letter like an expert. Compare award letters from different schools to determine the best one for you.

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Published on September 28, 2021 · Updated on March 8, 2022

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The Student’s Guide to Evaluating Financial Aid Award Letters


Once you complete the Free Application for Federal Student Aid (FAFSA), you can expect to receive financial aid award letters in the mail from colleges and universities you've been accepted to. According to the College Board, undergraduates received an average of $14,800 in financial aid in 2020-21.

However, financial aid packages can vary widely based on a person's income and assets, as well as the estimated costs of attending a specific school.

In this guide, you'll learn how to read financial aid award letters, compare offers, and determine the difference between common financial aid sources.

What Is a Financial Aid Award Letter?

A financial aid award letter helps students and their families understand the cost of attendance at a particular school. There is no standard award letter format, but all letters contain the same fundamental components.

Your cost of attendance (COA) provides an estimated total for tuition, fees, room and board, and books and supplies.

Letters also list your available sources of financial aid, including federal loans, grants, scholarships, and work-study. Letters may state your estimated family contribution (EFC) as well.

Award letters reflect information for only one year of attendance. Students receive new award letters each year they apply for aid.

How Do I Read My Financial Aid Award Letter?

If you receive financial aid award letters from more than one school, the formatting may look different, but each letter should have the same general components.

Cost of Attendance

The COA listed in your letter is not the amount billed by the school. Rather, it provides an estimation of total expenses, including tuition, fees, on-campus room and board, books, supplies, and transportation.

Estimated Family Contribution

Despite the connotation of the word "expected," an EFC is not the amount of money your family is required to pay for college. The EFC measures your family's financial strength. Schools use this estimate to calculate a student's eligibility for certain types of federal financial aid.

Awarded Aid

Your letter likely includes a list of several financial aid sources, such as loans, scholarships, and grants. Loans require repayment, while grants and scholarships do not. Federal Work-Study programs provide students with part-time jobs while they're enrolled in school.

You may also receive a college financing plan. These standardized U.S. Department of Education forms break down expenses and aid, allowing for simplified understanding and comparison between schools.

How to Compare Financial Aid Award Offers: 3 Easy Steps

As students compare financial aid award offers to find the one that works best for them, they should take two factors into consideration.

First, consider what percentage of financial need is actually being met. Second, consider how the school aims to meet that need. What percentage relates to scholarships and grants versus loans?

Follow the steps below to make an informed decision.

Step 1: Calculate the Total Financial Aid Amount Awarded

Financial aid award letters provide the information needed to determine the total aid amount. To calculate your total financial aid award, simply add the federal loan aid amount to the gift aid amount.

In breaking down the different sources of funding, students will notice that gift aid accounts for grants and scholarships, which do not need to be repaid, and federal loan aid, which does require repayment. Understanding the difference between these two early in the process can help learners make an informed decision.

Federal Loan Aid Gift Aid (Grants and Scholarships) Total Financial Aid Award
College A $8,000 $10,000 $18,000
College B $8,000 $9,000 $17,000
College C $12,000 $8,000 $20,000

Step 2: Determine Your Financial Need

After taking time to fully understand how much aid their financial aid award package provides, students need to consider how much money they actually need. The cost of attendance provides an estimation of how much it will cost learners to attend a particular college.

The EFC notes the out-of-pocket money students are expected to cover, while the financial need section lists how much money they need in the form of gift aid and loans. To determine your financial need, subtract your EFC from the school's estimated cost of attendance.

Cost of Attendance Estimated Family Contribution (EFC) Your Financial Need
College A $26,000 $8,000 $18,000
College B $22,000 $8,000 $14,000
College C $34,000 $8,000 $26,000

Step 3: Determine Your Unmet Need

Determining unmet need is an important part of the process, as it helps you see whether or not your financial aid award covers the entire cost or if you will need to find more money through loans. To understand your unmet need, subtract your total financial aid award offer from your financial need.

Your Financial Need Total Financial Aid Award Offer Your Unmet Need
College A $18,000 $18,000 $0
College B $14,000 $17,000 -$3,000
College C $26,000 $20,000 $6,000

As the table demonstrates, the largest financial aid award offer is not always the best. Even though College C provided the biggest award, its higher cost means that students would still have an unmet need of $6,000.

While individuals could appeal for more aid, they may ultimately need to take out a private loan. Conversely, choosing College B allows the student to accept a partial amount of aid and owe less in student loan debt after graduating.

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How to Determine Whether a Financial Aid Award Is Good or Bad

Before you can determine whether a financial aid offer is good or bad, you'll need to figure out the net cost.

To calculate this, you should subtract the amount of gift aid (grants and scholarships) from the school's estimated COA. This provides you with an estimated net cost, i.e., the amount you would need to take out in loans or pay out of pocket to attend.

Cost of Attendance Gift Aid (Grants and Scholarships) Net Cost
College A $26,000 $10,000 $16,000
College B $22,000 $9,000 $13,000
College C $34,000 $8,000 $26,000

Once you calculate the net cost, you can start to evaluate which offers are better than others. Determining whether a financial aid package is good or bad largely depends on how your EFC compares to your estimated out-of-pocket costs.

A school that provides a large financial award may still carry a significantly higher net cost than your calculated EFC. This generally equates to a poor aid offer.

Once you know the net cost, you can determine exactly how much you'll need to borrow in loans or pay out of pocket yourself. To calculate this, subtract your EFC from the net cost.

Net Cost Estimated Family Contribution What You'll Need to Borrow or Pay
College A $16,000 $8,000 $8,000
College B $13,000 $8,000 $5,000
College C $26,000 $8,000 $18,000

As the table above illustrates, it's clear that Colleges A and B offer better award packages than College C. This doesn't mean you can't attend College C, but you will have to borrow more in student loans than you would with College A and B, ultimately leading to more student debt.

Can I Negotiate My Financial Aid Package?

If your school's net cost is significantly higher than your family's expected contribution, you can appeal for additional aid. Students interested in appealing their aid package based on financial need should contact the financial aid office of their prospective school.

It's best to appeal as soon as possible because schools are only granted a limited amount of federal aid funds.

Students may also contact the admissions office to request an increase in scholarships or other merit-based funding.

To effectively state your case to the school, use specific examples and documentation related to your family's financial circumstances. Allow a few weeks for the appeals process.

Frequently Asked Questions About Financial Aid Award Letters

true Do you have to accept all the aid in a financial aid award letter?

Under no circumstance are you obligated to take all the money offered in a financial aid award letter. Taking advantage of any type of funding that doesn't need to be repaid (e.g., scholarships, grants, and work-study money) makes a lot of sense since this is free money.

If your financial aid award letter offers a higher loan amount than you're comfortable taking — or you simply don't need that much to cover basic expenses — you can reject part or all of the loan offer. That said, you'll need to make up the difference of any unmet need in another way to cover educational costs.

true When will I receive my financial aid award letter?

The timing generally depends on two primary factors: when you submit the FAFSA and the individual processing schedule of a school. Most colleges mail out financial aid award letters around the same time as acceptance letters, which means you can usually expect to receive your award letter in March or April.

However, if you're applying early action or early decision, it's possible that you may receive your award letter as early as October or November. You can contact financial aid departments for specific information.

true What additional costs should I consider?

Schools try to provide a comprehensive COA estimation, including tuition, fees, room and board, books, transportation, and other common personal expenses. However, other expenses — like lifestyle costs, school supplies, and parking passes — are not factored into that total.

Miscellaneous personal expenses vary greatly by each student's spending habits, so it's important to budget accordingly for these hidden costs.

false What are the terms of the loans, grants, and scholarships?

Student borrowers should fully understand the terms of any loan before signing on the dotted line. Ask for specifics about interest rates (the amount and whether it is variable or fixed), the possibility of deferment, and how long repayment will take.

Alternatively, grants and scholarships may seem like free money, but they usually come with strings attached. You should know whether awards are contingent on academic performance, enrollment status, or other factors. Be sure you understand how each scholarship or grant will be allotted and whether any awards are renewable for future academic years.

false When will my financial aid be dispersed?

Federal financial aid usually starts to be disbursed one week prior to the first day of the semester. Although most financial aid awards apply to an entire academic year, funds are distributed on a semester basis. If you receive a $4,000 Pell Grant, for example, you can expect to receive $2,000 each semester.

DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.


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