How to Compare College Financial Aid Offers

A college’s financial aid offer can sometimes be the difference between a college acceptance feeling like a dream come true or a very rude awakening. But this reality check, however painful, doesn’t have to be the end of the dream. We believe that with some careful reading, comparing, and number-crunching, students (and their parents) can make the most informed financial decisions for their future.

To help you navigate that process, we’ve detailed below what you can expect to see in a financial aid offer letter, our advice for how to thoughtfully and thoroughly compare different offers, and some of the most common oversights and mistakes when comparing offers.

*A note for parents/guardians: We strongly recommend including your students in these financial discussions, whether they will ultimately be on the hook for any of their education expenses or not. For some, it may be their very first time considering the details of a large-scale investment like a college degree. As they get ready to move out and begin their adult lives, an understanding of budgets, expense breakdowns, loan repayments, credit health, and other financial considerations will be incredibly useful!

How To Read Your Financial Aid Offer

There is no one standardized way of presenting a financial aid offer, so you may encounter a variety of different formats and explanatory material within these letters. Some schools will provide their own resources for how to read their financial aid offers, whether that is a step-by-step guide with sample offers, or the opportunity to meet with the financial aid office directly. We recommend taking advantage of these resources wherever possible!

Any well-outlined financial aid offer should show you, in a straightforward and transparent manner, how to calculate your out-of-pocket costs for attending a particular institution. In simple terms:

Total institutional expenses – Total aid offered = What you will pay

Here are some of the key pieces you should look out for in an offer letter:

A breakdown of estimated expenses:

This section includes everything the school will bill you for: tuition expenses, fees, and on-campus room and board, if applicable. A fully transparent aid offer will also include an estimate of the indirect costs of attendance, including: books and supplies, transportation, off-campus room and board, personal expenses, etc.

A breakdown of the financial aid you’re eligible to receive:

This is the “offer” part of your offer letter. Your financial aid can be divided into two main types: “gift aid” (or “free money” that you do not have to pay back) and “self-help aid” (all other kinds of aid, including loans and work-study). The most transparent aid offers will purposely separate these two types of aid so that you can see how much will be your responsibility to pay back.

“Gift aid” can include:

• Need-based grant aid, such as federal Pell grants, state-issued grants, and need-based grants from the school itself.
• Merit-based aid, such as scholarships directly offered by the school or by your state, or scholarships from outside organizations.

“Self-help aid” can include:

• Work-study: a federal work-study offer allows you to earn wages through an on-campus job, which can then be used towards a set portion of your expenses.
• Federal Student Loans: Direct Subsidized or Direct Unsubsidized, depending on your Student Aid Index (SAI) as calculated from your FAFSA.
• Other financing options: these may or may not be included in the breakdown of your aid offer, but you may see other types of loans listed here, such as Parent PLUS federal loans (taken out in your parents’ names), or institutional loans or private loans (which will have higher interest rates and fewer borrower protections).

Most financial aid offers will calculate a net price, or the amount you will have to pay out of pocket once your aid has been applied. Others might obscure this number by including some of those “other financing options” mentioned above. If your total aid offer comes out to exactly the same amount as the school’s total expenses, it’s important to check and see if they’ve included any Parent PLUS or private loans in that aid breakdown. These additional financing options are necessary for some students and families, but they can be much riskier financial decisions, and it may not be immediately obvious that there is a difference between these types of self-help aid.

How to Compare Multiple Aid Offers

Once you know the key pieces to look out for, it will be easier to compare financial aid offers between schools, even if they are laid out differently. The most important thing to keep in mind when you are comparing offers is that the largest overall dollar amount of aid is not necessarily your “best” offer. This can be especially easy to overlook when the emotions of college acceptance season are high. A dream school isn’t quite as much of a dream if it will mean being saddled with lots of student debt!

Our best tip? Consider each financial aid offer as a percentage of the total costs for that school, rather than comparing raw numbers.

Let’s look at a quick example:

You receive a $30,000 merit scholarship from two schools: a private college and a flagship state university. While both may seem like great offers on their face, that scholarship will look a lot different at the private college (which has an annual bill of $60,000) compared to the state university (which charges in-state students $32,000 a year to attend). At the private college, the scholarship only covers half of your expenses, while at the state university, it covers over 90%. There is a significant difference between paying $30,000 per year (whether out of pocket or with loans) and $2,000 per year.

This is a particularly lopsided example, but the principle applies even when the numbers you’re comparing are much closer. And don’t forget to factor in the indirect costs of attendance as well! Considerations about on-campus vs. off-campus housing, or needing to fly home vs. taking a bus or train, can sometimes tip the scales in one direction or another.

Common Oversights When Comparing and Accepting Financial Aid Offers

It’s easy to get overwhelmed by the details of all of your competing financial aid offers, but that overwhelm can often lead to mistakes or misunderstandings that are completely avoidable. Here are some of the most common oversights when it comes to financial aid:

• All loans are not created equal! There is a big difference between not only gift aid and loans, but also the various kinds of loans. The two types of federal student loans, Direct Subsidized vs. Direct Unsubsidized, accrue interest differently. And these federal student loans are additionally different from federal Parent PLUS loans, or those borrowed from private lenders. This is a critical consideration when comparing aid offers.
• You never need to accept an entire loan offer. You can (and should) reduce the amount of any loan in order to only borrow what you know you need for educational expenses.
• You can appeal your financial aid offer. However, it’s important to note that most successful appeals are due to significant changes in financial need or significant errors in filing FAFSA. It is also possible to negotiate additional aid if you received a better offer from another school (but the schools should be comparable institution types).
• Financial aid offers are for a single academic year, but are often renewable. Students will need to resubmit their FAFSA annually in order to be eligible for renewing their financial aid. Some scholarships may be one-time awards, so be sure to check renewal conditions for each portion of your aid offer.

Final Thoughts

Finances are the number one deciding factor for the majority of incoming college students and their families. As Decision Day draws nearer, the pressure to make the perfect college choice may feel immobilizing, especially with the overwhelm of competing financial aid offers. But our reminder to you is that there is no such thing as a perfect choice—there is only the best choice you can make with the information you have. Our hope is that you are able to gather as much information as possible about all of your options, so that your choice is truly the best for you.