Clear advice from Peter van Buskirk –
Making Sense of Financial Aid Awards
It’s crunch time for families in the college selection process. The admission decisions are in and, with less than a month remaining before the May 1 Candidates’ Reply Date, students are now turning their attention to the final choice of a college. It’s an exciting—and nerve-wracking—time to be sure, especially for families trying to reconcile cost and affordability against limited means and/or cash-flow concerns.
If you are in that number, there is a strong likelihood you applied for financial aid and are now trying to interpret the financial aid award letters you received from various colleges. Months ago, as you engaged in the grueling task of completing the financial aid applications, it was the promise of the “just reward” that kept you going. Now that the award letters are in hand, you are left wondering, “what does it all mean?”
A young man has shared with me the financial aid award letters he had received from ten different colleges. Never mind that he had allowed his list of colleges to grow too long—he had been admitted to ten and had received various forms of financial aid from each of them. With an EFC or « Expected Family Contribution » (per the FAFSA) of $5,000, the award letters were predictably generous. They were also troublingly inconsistent.
For example, two of the schools, at total costs of $39,825 and $61,740, respectively, appeared to cover the entire cost of attendance with financial aid. The first included modest “self help” (loan and work study) totaling $2,565, in addition to more than $37,000 in grants and scholarships, in its financial aid offer.
The second college issued a financial aid award letter that featured $36,900 in grants/scholarships. The balance, $24,840, was covered by loans and work study! On the surface, it seemed both schools were being quite generous in covering all of his costs. Upon closer examination, however, the difference in “out-of-pocket” expense for this family at the two schools would be greater than $20,000—all with the same EFC!
The wide variance in financial aid awards in response to the same financial circumstance is the result of a practice called “preferential packaging.” It is integral to the strategic deployment of financial aid as institutions attempt to leverage the enrollment of the students they value most. Students who are more highly regarded typically receive financial aid that includes greater portions of grants—and, possibly scholarships.
Conversely, the attitude toward other students, whose credentials were strong enough to warrant their admission but not strong enough to gain them superstar status at a given school, is that “if they want us badly enough, they find the means to make it happen.” It is when families, often wide-eyed with their students’ acceptances into high profile schools, buy into this logic that they open themselves to unreasonable debt burdens.
As you compare financial aid award letters, then, it is important that you get to the bottom line “out-of-pocket” expenses for each. Where does the bottom line benefit you most? Unfortunately, the award letters don’t always spell that out for you. The following tips are offered to make sure you are comparing “apples and apples.”
1. Identify the total cost of attendance for each institution. This will include tuition, room and board as well as books, supplies, activity fees, lab fees and possible transportation expenses. You may need to consult the school’s website for a complete list as very few award letters provide a complete documentation.
2. Add all of the grants and scholarships listed on the award letter together. These funds comprise the “gift” aid you are receiving—money you don’t have to re-pay. The sources of these funds may include the state and federal governments as well as the institution itself.
3. Subtract the total amount of “gift” aid from the total cost of attendance to determine the total out-of-pocket expense for your family.
4. In most cases, institutions will offer a standard “self-help” component to the financial aid award that includes a Guaranteed Student Loan (Stafford) of $3,500 and a campus work-study opportunity worth up to $1,500. Note that the two figures are likely to increase in subsequent years: the total institutional cost and the amount of the loan eligibility. Additional loans authorized for the student or the parents (PLUS Loan) may be offered in place of “gift” aid.
5. A word of caution is in order here. If you have somehow managed to pool your family resources into coverage of costs for the first year on the assumption that, because you will appear more “needy” in the second year, you will be treated to more financial aid—guess again! Colleges and universities typically budget financial aid for students in years two, three and four based on the EFC of the first year. They will have contingency funds available for emergent situations (catastrophic health issues, changing employment status, loss of life, etc.), but not for families who claim sudden poverty because all of their funds were committed to the first-year expenses. In the case of the latter, get ready for a heavy dose of loans for both the student and the parents.
6. It is not uncommon for the total amount of financial aid offered, both “gift” and “self help,” to fall short of making up the difference between the Expected Family Contribution and the total cost of attendance. This is practice, known as “gapping,” is symptomatic of preferential packaging and is employed by institutions that choose not to meet the full need of the student with financial aid. In such cases, the student is left to his/her own devices to find the remaining funds.
7. Know the difference between grants and scholarships. A grant is awarded because you demonstrate financial “need.” It should carry forward in subsequent years as long as you continue to demonstrate need and remain in academic good standing. A scholarship is offered in recognition of merit and will likely carry with it academic and/or performance renewal terms.
8. Appeal financial aid awards with information, not emotion. If your family’s financial circumstances have changed since you completed financial aid applications, submit written appeals to the colleges in question along with documentation of the new circumstances. Some colleges will invite you to submit “better” financial aid awards from their competitors as part of an appeal. In any case, keep your cool. You are only entitled to aid that the institution decides to give you.
In the final analysis, you will have to complete your own cost/benefit analysis to determine whether there is sufficient value to you in accepting a financial aid award that might be less than you need or would like. Now is the time to weigh your options carefully. You need to be entirely comfortable with your ability to manage the cost of attending a college before you submit an enrollment deposit.