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How to understand a financial aid award statement Thumbnail

How to understand a financial aid award statement

Financial aid award statements can be misleading. Schools often lump together both loans and financial aid and leave families scratching their heads to figure out the actual cost of a year of college. Knowing the difference between “free money” that you don’t pay back and the money that you’ll have to earn or pay back later is critical to understanding the true cost of each school on your child’s list.

Let’s start with the cost of attendance. This refers to the “sticker price” of each school on your child’s list. It is the total cost when adding together tuition, room and board, books and the other expenses associated with a year of college. This cost reflects what the cost of attending school would be if your student didn’t receive any scholarships or financial aid.

Many families that we talk to know these sticker prices well. When they compare Harvard University to UConn, they think of the estimated 2021 cost of attendance of attendance of $72,391[1] at Harvard vs the $56,605[2] estimated 2021 cost at UConn for an out of state student. What many people fail to realize is that the number of students actually paying this full sticker price at either school is very small.

While private colleges usually have a higher cost of attendance than in state public schools, they are often more generous when it comes to handing out the “free money” in the form of scholarships and need-based grants. As a result of this, private colleges shouldn’t be totally ignored from the college conversation with your child.

So what is this “free money”? Here, we’re referring to grant money that directly reduces the cost of attendance on a dollar for dollar basis. The most common forms are academic and talent-based scholarships, as well as need-based financial aid. When you see scholarships and grants on your financial aid award statement, these are granted and do not need to be paid back.

What needs to be paid back? When you see work study and federal loans on your student’s award statement, they don’t necessarily reduce the cost. Work studies are federal programs that allow your child to work part time on campus while attending school. While they can help to reduce the cost, your student must work on campus to earn the money, so it’s not necessarily free.

When you see unsubsidized and subsidized loans on an award statement, this is probably the most misleading info of all. These federal loans are often great options with low interest rates; however, they are still loans that will need to be paid back in full with interest after your student graduates.

Why is this especially misleading? Let’s compare this to the scenario of buying a car from a dealer. Pretend that you’re buying a $65,000 BMW. This $65,000 is the “sticker price”. With the car “on sale” for $25,000 off the original price, discounts put the cost to you at $40,000. Instead of paying cash, you plan to finance the car and take out a loan to pay the remainder.

Where colleges differ from the car dealer is that they often include federal loans and work study (money that has to be earned or paid back) inside the financial aid package. That makes it seem like they have reduced or eliminated your out-of-pocket costs. While the car dealer wouldn’t try to convince you that the car loan reduces the overall cost (e.g., “With the loan, your car is free!”), you’ll notice that many colleges and universities add loans and work study to their award package even though this money has to be either earned later on or paid back.

Now that you know the breakdown of a financial aid award summary, hopefully you’ll have a better idea of the net cost at each school.

If you have questions about award statements that your child is receiving, feel free to reach out, I’m here to help!


All the best,


Andrew Holmes, Certified College Planning Specialist™




Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

[1] https://www.harvard.edu/about-harvard/harvard-glance

[2] https://admissions.uconn.edu/cost-aid/tuition

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