Financial Aid Tips for the Uninitiated

Published on April 30, 2014, by in Personal Finance.

If you’re the parent of a child in high school that is rapidly approaching college age, chances are that you’ve just been introduced to the “numbers game” that is financial aid.

Colleges across the country issue their financial aid awards just after acceptance letters are sent out and, while the numbers might look rather impressive, the award letters can sometimes be confusing. Even worse, if interpreted the wrong way you might make a  mistake that could  cost you thousands of dollars.

For example, from the look of some financial aid letters some colleges mix up their loans and grants in what looks to be quite a random fashion. Others fail to clearly identify the student loans as actual loans or make it look as if they are giving away “free money”. Some colleges forget to mention the cost of expensive college extras like textbooks, which can be obviously problematic.

“Fundamentally, award letters aren’t really a counseling tool. They are marketing documents,” said Mark Kantrowitz, senior vice president and publisher of Edvisors Network. “Their goal is to show you how you can afford the school, even if you really can’t.”  Kantrowitz added that, even though 2000 colleges around the country have adopted a common format when it comes to financial aid award letters, the majority of colleges in the United States have not.

“There is no standardization because if you could easily compare, you could realize which school is more affordable,” Kantrowitz said.

In 2007/2008, the last year that figures are available, over 50% of all students received some type of financial aid, averaging approximately $4900, no small amount of money. That’s according to the National Center for Education Statistics and, for students at private four-year colleges, the average was over $10,000. Additionally, almost 40% of students received an average loan of $7100 and, at four-year colleges, $9100.

Keeping these numbers in mind, below are a number of steps that you can use when comparing financial aid so that you know exactly what you’re getting into and can make an accurate comparison.

The first and most important is to not make the mistake of seeing these financial aid loans as “free money”. Many colleges subtract both loans and grants from their total cost and present that as their net cost, but Kantrowitz says to include these loans in what you will eventually have to pay back.

“Only in the parlance of financial aid is a loan characterized as reducing your costs,” he said. “Imagine going to a car dealer and having them say ‘that car is free because you have zero down.”

When it comes to grants however, that’s another story completely. “There is no better price than free,” said Martha Holler, a senior vice president at Sallie Mae.

She’s correct of course but cautions that, when calculating the four-year cost of college, a parent make sure to know whether the grant their child is receiving will be available for 1 or 2 years as well as whether the grant itself is based on things like grade-point averages, sports participation or the choice of their child’s major.

Holler went on to say that  “you may see a one-year grant for $2,500, but a four-year grant for $1,000 annually”, and noted that this would be a better deal (obviously) that might be overlooked when comparing student loan forms and figures.

If you’d like to compare average grants to beginning students as well as to students at a particular college, you can go to for help.

Finally, be sure not to let the “sticker price” throw you off. While some private four-year colleges will indeed have much higher stated costs, they may also have a lot more aid to grant and, according to Holler, “Sometimes it’s that more expensive school that costs you less out of pocket.”

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