When decoding an award letter the primary goal is to determine the Net Price of the school, which is the actual price the school is charging your family for a year of college. If you receive an award letter from more than one school, it is the Net Price of each school that you need to compare.
But decoding financial aid award letters is often a challenge because there is no mandatory format for financial aid award letters. Some colleges only provide some of the information you need to figure out the price they are charging your family and many colleges present the information in a way that is confusing or misleading.
So you will have to use a step by step approach to calculate and compare the Net Price that each school is charging your family.
Step 1 – Download the Award Letter Decoder
The Award Letter Decoder helps you compute and compare the Net Price for each college.
Step 2 – Record the Sticker Price (Estimated Cost of Attendance)
Record all the basic expenses in the Sticker Price section of the Award Letter Decoder:
Some colleges provide incomplete cost estimates (or no cost estimates at all) on their award letters, so you might have to track down some of the estimated expenses on the school website and/or compute your own estimates. You will find very detailed information about how to evaluate expenses in the College Expenses section.
Step 3 – Identify the Grants & Scholarships
Enter all Grants & Scholarships listed on the financial aid award letter in the Discount Section. If the award is a grant or scholarship it should say so on the award letter. But financial aid offices use a lot of acronyms so when in doubt, ask them to confirm that the award is a grant or scholarship.
Federal Pell – Students with family income less than $70,000 might qualify for a Federal Pell Grant ranging from a minimum of $300 to a maximum of $5775. If the Federal Pell awards are different on two or more award letters, check with each school to confirm your Pell eligibility. It may be that one school has provided an estimate of the Pell award and the other listed a final verified amount.
Federal Supplemental Opportunity Grant (SEOG) – A small number of schools have block grant SEOG funding which is limited to Pell recipients. These awards range from $500 – $4000.
Federal Teach Grant – up to $4,000 per year. If you have been awarded a Teach Grant, then you should carefully review the terms and conditions of this federal grant program. If you do not meet all the requirements throughout college and after graduation, then this grant retroactively converts to a loan.
Many states award grants & scholarships to students who remain in state for college.
Read the fine print to determine the likelihood that you will receive these awards in future years.
Outside scholarships generally don’t appear on the financial aid award letter unless you or the scholarship agency notifies the college before the award letter is generated. This doesn’t happen very often and in many cases the outside scholarship organization does not choose recipients until late in the spring. Be sure to review the results you recorded on your Outside Scholarship Tracker worksheet.
Step 4 – Record Student Loans and Work-Study Awards
Because student loans and work-study awards are not discounts, they don’t factor into the Net Price calculation. They appear in the financial aid award letters because federal student loans and work-study awards are considered “financial aid” and they are, in fact, very useful sources of funding that help students pay for college.
NET COST vs NET PRICE
These are not the same! NET COST has no generally accepted definition for financial aid purposes. The term sometimes appears on school net price calculators and financial aid award letters, where it typically represents your annual out-of-pocket costs. It can be further described as follows: NET PRICE – (LOANS + WORK-STUDY WAGES) = NET COST.
NET PRICE is defined as the sum of your college costs less grants and scholarships. It is what you will pay for an academic year of education at a particular school. When looking for schools that are a financial fit for your family, NET PRICE is the critical number.
If you decide to use student loans to help pay for college it is very important that you review your borrowing options for all four years and estimate the how much your monthly repayment amount will be after graduation. Review common repayment scenarios and learn about the different options for managing and repaying your student loan debt.
Ignore PLUS awards for now
Federal Parent Loans (PLUS) also appear on many financial aid award letters and are often presented in a confusing manner that makes the loan appear to be special financial aid that is awarded by the college. In fact, Federal PLUS is a financing option that is available to MOST parents regardless of whether or not it appears on a financial aid award letter.
Parents may ultimately choose to borrow through the PLUS program (after reviewing all parent borrowing options and estimating repayments amounts!) but don’t let this “award” distract you from the Net Price comparisons when you are decoding award letters.
Step 5 – Compare Net Price Results and Remaining Amount to be Paid
The Award Letter Decoder will now display the Net Price and the Remaining Amount to be Paid for each school for the first year and provide a four year calculation as well.
Although the four year estimates are not adjusted for future cost increases, it is a useful snapshot of total costs. That said, it is almost guaranteed that the Sticker Price will rise each year by whatever amount the school increases tuition, fees, room & board charges, while in many cases the Discounts will NOT increase – resulting in an increase to your NET PRICE each year.
Final Step – Personalize Your Expenses
Some of the Cost of Attendance figures provided at the time of admission are estimates. They are based on school estimates of “average” or “typical” student expenses.
Sometimes there are additional costs or hidden costs that will make YOUR expenses higher than the typical or average expense estimates provided by the college. On the flip side, there may also be opportunities for you spend less in some areas than the typical or average expense estimates provided by the college.
Books & Personal Expenses
Pay particular attention to estimates provided for books and personal expenses. These estimates may vary widely from college to college even though your actual expenses in each category should be the same regardless of the school you attend.
Furthermore, if you live modestly and buy used books then your actual expenses will likely be lower than the school estimates – sometimes significantly lower.
TIP #1 – Make your own estimates of these expenses and replace the figures provided by the school with your estimated figures in the Sticker Price section of the Award Letter Decoder. For example, you may decide that $1,200 is an appropriate estimate for your personal expenses and that $600 is good for books because you are committed to bargain hunting.
When you replace the various school figures with your own consistent estimate, you will be comparing apples to apples when reviewing the the net price for each college.
It is difficult for colleges to estimate the amount of money you will spend traveling back and forth to college. You should make you own estimate based on how many times you think you will go home and how your will travel.
You will find a great deal of information about how to evaluate all expenses in the College Expenses section.