Financial aid award letters are complicated to understand, largely because each school can have its own terminology for the same type of funding. For instance, two schools may offer a four-year scholarship for $20,000 per year. One school calls it a scholarship and the other calls it a grant. Both have GPA and other requirements to keep receiving funds. The words “scholarship” and “grant” didn’t matter. It’s the conditions for getting the money the next year that do.
To help you decipher financial aid award letters, we separated financial aid offered on award letters into the categories of free money, money that is earned, and money that has to be paid back.
If you’d like to compare your offers, go to Compare College Offers and enter the information from your award letter.
Important note: You can’t decipher financial aid award letters completely without contacting each school’s financial aid office to get more details. Each section of this article advises you on what questions you’ll need to ask to get the information you need.
Let’s start with the free money categories: Grants and scholarships
You may get a wide variety of grants from the federal government, your state government, and your school. For instance, you may get a Pell Grant from the federal government. The main qualification is financial need, and it is based on your family’s finances that year. You really won’t have a reason to ask for details on this kind of grant. However, a grant from the school could have a GPA requirement and essentially be a scholarship.
Think of grant and scholarship as interchangeable words. For any financial aid offered in this category, ask the financial aid office for these details:
Is it renewable?
Renewable scholarships and grants are good for more than one year. Since you will likely have to pay for 4 years of college, it’s very important you find this out when comparing college options. Otherwise, you could end up with a very cheap first year and very expensive years afterwards. Renewability can very easily make the difference in which school you choose.
Are there need-based requirements for renewal?
Need-based aid is awarded based on yours or your family’s income. If you qualify this year, it doesn’t mean you will in a future year if your family experiences an income boost. If you qualify for need-based aid, ask the school about the likelihood of getting the same aid the following year.
Is it merit-based?
Merit-based aid is based on grades, test scores, talents, leadership, or activities such as community service. These awards, if renewable, won’t depend on next year’s financial need. However, you may have requirements such as maintaining a specific GPA or continued participation on a sports team.
Note: Some awards are based on merit and financial need. Thus, when you ask about merit-based requirements, you’ll also want to find out if it has elements of both.
State scholarships and grants
States often have their own scholarships and grants that can be based on either merit, financial need, or both. You will need to ask the same questions on these scholarships and grants to the financial aid office as other financial aid awards. If you didn’t receive state scholarships or grants, review the guidelines for them on your state’s education department website. You may find one you could submit an application for next year.
Private scholarships are scholarships you received from outside of the college, such as from community organizations, employers, or corporations. These scholarships aren’t listed on your financial aid award letter. However, you need to mention them as soon as possible to college financial aid offices. Why? Some schools will reduce scholarships and grants based on private scholarships received. Others will reduce student loan amounts. You need to who does what before comparing financial aid offers.
Chances for increasing your financial aid package
While you have the financial aid office on the phone, you might as well ask about opportunities for increasing your financial aid package. There could be additional scholarships you could apply for based on your talents, interests, or major. You can also mention other offers you received from schools you are considering or financial circumstances that have changed since you filled out the FAFSA or CSS Profile.
If negotiating your financial aid offer, make sure you are prepared to tell the school why you would like to go to their school. Don’t be afraid to do this on your second call. You may need two calls because you may need the first round for gathering details. Then you know if one school is offering you a renewal scholarship while another isn’t. Private schools often have endowment money they can use to attract top students that they may offer to avoid you going to another college. If challenging the offer due to financial information, ask for the special circumstances form that should be on their website. This is where you can talk about a wide range of circumstances from high medical expenses to a drop in family income.
Money that has to be paid back: Student loans
Subsidized student loans
A subsidized federal student loan is a loan issued directly to undergraduate students where the government pays the interest charged for students while in school and in a few other circumstances. These loans are based on financial need. The current maximum students can qualify for per year is $3,500 at an interest rate of 4.53 percent.
Unsubsidized loans aren’t need-based. Students don’t have to worry about family income level to qualify. Interest does accumulate during college, but undergraduate students get the same low 4.53 percent interest rate. Graduate students receiving unsubsidized loans pay a higher interest rate of 6.08 percent.
PLUS loans are the gap fillers if unsubsidized and subsidized loans don’t cover the remaining financial need you have after scholarships and grants. They are awarded to either parents or graduate students to fill gaps after other forms of student aid is exhausted. These loans have a current interest rate of 7.08 percent and an origination fee of over 4 percent. Unfortunately, credit requirements are slim and income isn’t considered. Thus, families and grad students can potentially borrow much more than they can afford.
Note: Private loans aren’t listed in financial aid award offers, but they can often substitute for PLUS loans with a lower interest rate. And they don’t have an origination fee. The problem and perk of private student loans is that approval is based on income of the borrower and co-signer, the person such as a parent that takes on co-responsibility for the loan because the borrower doesn’t have the necessary credit and/or income requirement for approval. Thus, the amount offered may not fully cover the cost of attendance. If this is the case, it’s a good time to think about whether there is a less expensive school you’d like just as much.
Self-help is a category schools use to say this is the amount they believe a family can pay for themselves. This money can also be chipped in with work or student loans. Since the definition of self help can vary quite a bit, you can always ask the school for their definition of self help.
Money you have to earn: Work study
The federal work study program is truly a strange type of financial aid. It merely says the maximum you could earn through a job you could get on campus through the program. They don’t have to hire you at all. If they do, they may give you less hours than the maximum you could qualify for. Pay rates range from minimum wage upward. Before taking a work study position, compare job offers from other campus offices and nearby off campus employers. Don’t count any new job as guaranteed funding for school.
Bottom line: Financial aid offer letters can call the same exact same type of financial aid a different word or phrase than another school uses. Compare offers based on your understanding of financial aid offers after calling college financial aid offices.
5 Key Takeaways for understanding your award letters
- The most important thing you can do is call financial aid offices at the colleges you are considering to get more information on the terms and conditions of your financial aid awards.
- When comparing colleges keep a comparison sheet with terms you can understand like renewable, GPA requirements, and need or merit based.
- Always ask about other scholarships and financial aid you could receive. Be ready to mention your skills, GPA, talents, activities, and major.
- Don’t be afraid to make two calls to the financial aid office. You may need the second one to negotiate financial aid after comparing offers.
- Look at all loan options. Private loans are often a better option than PLUS loans. Subsidized and unsubsidized should almost always be borrowed first.