April Madness: How To Decipher College Financial Aid Letters

College acceptances are in hand. Now comes the hard part: before a May 1 decision deadline, students and their families must figure out how much each school would actually cost them and which they can afford.

When Maddie, an aspiring architectural engineer, was a high school senior in Rochester, N.Y., college admissions experts assured her parents she was an ideal applicant. She was “in a million extracurriculars, top of her class, and entering a male-dominated field,” says her understandably proud mother, Jennifer. Sure enough, by this time last year, acceptances from Maddie’s top choices, including Northeastern University, Syracuse University and Worcester Polytechnic Institute, had rolled in.

Then came the bad news: follow up financial aid award letters laying out the $80,000 or so total annual “cost of attendance” for each of those private colleges and the not-big-enough merit scholarships Maddie was being offered to defray some of those daunting price tags. The bottom line (a.k.a. the net cost of attendance) came in at more than the family could afford.

“As soon as she saw the number, depending on her mood, sometimes she rolled her eyes and laughed, and sometimes she burst into tears,” recalls Jennifer, who requested we not use the family’s last name. “You’ve heard your whole adult life that there are certain kids whose parents make them pay their way through school—but banks are not going to let them take out $75,000 in loans. The parents have to put their names on those loans,” she points out. “Here we are, ready to retire, and we have to take out mortgage-sized loans?”

For some high school seniors and their parents, April really can be the cruelest month as buckets of cold financial reality are thrown on collegiate dreams. Usually, families have until May 1 to decide on a school and send in a down payment towards what will be one of the biggest expenditures of their lives. It’s a choice that could require taking on big debt and affect other life-defining choices (about career, homeownership, children and retirement) for decades.

The decision making process is even more of an ordeal because financial aid award letters are not standardized, often incomplete, and sometimes downright misleading, making it nearly impossible to compare offers side-by-side without extra calculations and research.

Maddie is now finishing her freshman year at the public University of Cincinnati. Its cost of attendance for out-of-state students is around $47,000 a year—a lot less than her first choices. Meanwhile, her high school junior brother, after watching Maddie’s experience, is focusing his college search on State University of New York schools. Undergraduate tuition for New York residents at the system’s four-year colleges is currently $7,070 per year, with the total cost of attendance coming in at $23,740.

GIVE THAT COLLEGE AID LETTER AN “F”

To help other families navigate through this mess, Forbes spoke with financial aid experts to get their best advice for deciphering financial aid award letters and appealing for more aid when appropriate. High school juniors now beginning the college search can use the Department of Education’s College Navigator Tool and its College Affordability Transparency Center to research both gross and average net costs, based on income level, at specific schools. But keep in mind, your individual results could vary, so don’t write off applying to a school that suits you academically, based on those tools alone. A wealthy school able to fully meet a lower income family’s financial needs could end up costing less than a cheaper school with a small endowment.

Here’s a step-by-step guide for high school seniors.

Find Your True Cost of Attendance

It’s essential to know your individual net price of attendance for each institution you’ve been admitted to so you can compare your options, figure out whether your family can swing the price and get a read on how much debt you might end up with—and whether that burden is worth it to you. Sadly, colleges don’t make such comparisons easy, since most don’t follow best practices (as defined by the Department of Education) in their financial aid award letters, according to a report last December from Congress’ Government Accountability Office.

Start with the gross cost of attendance. That includes tuition, mandatory school fees and room and board, as well as textbooks, transportation costs and an allowance for other personal expenses.

To get your individual net price, you would then subtract any grants or scholarships being offered. But the net price, the DOE says, should not include loans, which will have to be paid back, or work-study awards, which come with their own strings attached, including the fact that the student must work for pay, taking hours away from studying, other paid employment, or projects (such as scientific research or internships) that might be important for that student’s future career or grad school application.

Families often must calculate the net price themselves, and may need to scour a school’s website and even call the college financial aid office to extract additional information. Four in ten colleges don’t include a net price in their financial aid letters at all, and another 51% of colleges include a net price, but actually understate it by factoring in loans, according to the GAO report. Put another way, only one in ten colleges owns up to the true net price, as the government defines it. (Quibble with the government’s definition if you want, but there’s no question that families would have an easier time making a decision if every college followed the same accounting rules—just as public companies are supposed to follow certain rules when presenting their earnings.)

Only one in ten college financial aid letters owns up to the true net cost for a family. Others leave some expenses out, mislabel loans as “aid” or ignore costs completely, while touting a scholarship award.

“Students and their families are at a disadvantage from the get-go,” says Melissa Emrey-Arras, director of the GAO’s Education, Workforce and Income Security team. “They’re getting offers that aren’t providing all the information that they need.”

It’s not just net cost, but any information at all about cost that’s lacking sometimes; one in five financial aid letters reviewed by GAO didn’t provide any cost information, Emrey-Arras reports. “It’ll be like ‘Congratulations, you’re getting the scholarship.’ And then you think ‘Oh my gosh, I’m getting the scholarship. That sounds great.’ But if you can’t figure out how much you owe [after the scholarship], you can’t make an informed decision about whether you can afford to go to that college,” she says. “You could get a scholarship that is a lot of money, but then the tuition and the other costs could be so high that it might be actually cheaper for you to go to a different school.”

Even colleges that provide a full breakdown of all your costs may lowball expenses in certain areas. Colleges often underestimate textbook prices, says Mark Kantrowitz, a financial aid expert, Forbes contributor and author of several books on paying for college. “I’ve seen examples where the college says ‘Oh, your textbooks for the entire year will cost you $250,” Kantrowitz says. “But it depends on the particular field of study. A single chemistry textbook can cost you $250.” His solution: average the textbook estimates from all of the colleges you’re considering, and use that as a standard. So if one college says textbooks will cost $250 per year, another says textbooks will cost $1,000, and a third quotes $700, assume (for purposes of comparison) that textbooks at any of the institutions will be around $650 per year.

Transportation costs are another area where you can’t really rely on the numbers in a financial aid offer. “Transportation costs are going to differ based on where you’re coming from and where the college is located. If it’s in your backyard, your travel expenses are a lot lower than if you’re flying halfway across the country,” Kantrowitz says. “Also, how many trips home from school are you going to do? Are you going to come back every break—spring break, summer break, Thanksgiving break and winter break? Or are you just going to go home once?”

Understand Aid Types and Traps

Rochester financial aid advisor Liane Crane tells families to look for four key figures in colleges’ letters: merit scholarships, grants, loans and work study offers.

Merit scholarships, usually awarded to students who demonstrate outstanding academic achievement or excel in other disciplines like the arts or athletics, are often listed on award letters as “presidential scholarships” or under other institution-specific names. Essentially, these are discounts on a college’s list price that are not based strictly on a family’s financial need (although some colleges do take into account how likely an award is to swing a student’s decision).

Merit aid frequently comes with strings and a gotcha. One common string: a student may have to maintain a certain grade point average to get their merit scholarship renewed each year or semester. That’s understandable. But then there’s this gotcha: some merit aid is front-loaded, meaning that the college will grant the scholarship during the student’s first year, and later will reduce the award or won’t offer it at all, regardless of how well a student does in school. If it’s unclear whether a scholarship will be awarded for all four years of undergraduate schooling, students should call the financial aid office and ask explicit questions, Crane says. Getting it in writing doesn’t hurt either. Another way to judge whether a school will renew its merit aid is to look at College Navigator to see the average aid provided to freshmen versus all students. If the freshman aid is higher, that could be a tipoff that the school is frontloading its merit aid.

Grants are discounts based on a family’s financial need and include federal Pell Grants of up to $7,395 for low income students and discounts or scholarships that the university (and/or its donors) are supplying based on a family’s financial need. A family’s need is based on information in the Free Application for Federal Student Aid (FAFSA), and also, in the case of a few hundred pricey private schools, the College Board’s CSS Profile form, which asks for additional data, such as parents’ retirement savings and equity in the family home. (Users of the CSS form include Harvard, MIT, Stanford, the University of Pennsylvania and Yale.)

The numbers on these forms are used by schools to calculate an expected family contribution—that is, the amount they believe a student and their parents can pay out of pocket each year from current income and by dipping into assets, including 529 college savings accounts and other assets in either the parents’ or a child’s name. If a school advertises it meets the full financial need of students, what it means is that its aid package covers everything but the family’s EFC. Whether a family can actually come up with that EFC without a lot of hardship is another matter.

Parents can borrow the balance needed to pay college costs through federal PLUS loans. They should be wary. These loans carry relatively high interest rates and origination fees and parents who default could have part of their Social Security retirement benefits withheld.

“Parents might be under the illusion that they’re getting all this free money, but it could change,” Crane warns. If a family’s financial situation changes significantly while their student is in college, it could reduce, or increase, the grant money the student receives. One common change you might not think about: the number of college students you’re paying tuition for. For example, your younger child might see their need based aid reduced after an older sibling graduates.

Crane cautions students and parents not to be too enamored by the grant and scholarship totals—what’s important is the overall net price. “I’ve had many conversations with parents who say ‘They’re going for free’ or ‘They gave them $20,000 and this is a better deal,’ but the school costs $20,000 more” than the others, Crane says.

Work-study awards require a student to find and keep a job on campus, and work the number of hours required by the program in order to meet the total listed on the award letter. For some students, this can be difficult to maintain as their course load increases. It’s also important to know that in order for the work-study award to match what it says on the letter, the student must put their paychecks entirely towards college expenses.

Student loans are perhaps the most difficult piece to work through, since colleges list a variety of loan options and don’t use standard terminology to describe them. College financial aid letters can be intentionally misleading; A 2018 report by New America discovered that colleges used 136 unique terms to describe the Federal Direct Unsubsidized Loan, and 16 of those terms didn’t even include the word “loan.” Some colleges referred to the federal loan as “Fed Direct Unsub L,” “Direct Unsubsidized,” or simply “Unsubsidized.”

“It is deceiving,” Crane says. “People [don’t] understand it is a loan and money that needs to be paid back.”

There is a strict limit on how much in direct federal loans an undergraduate can take out a year—it’s $5,500 for freshmen who are dependents of their parents. The interest rate on these loans is fixed, but each year it’s adjusted for new loans. For example, new undergraduate loans issued between July 1 2022 and July 1, 2023 carry a 4.99% rate, up from 3.73% the year before.

Some colleges also include parent PLUS loans—unsubsidized federal loans, which can be as large as the net cost of attendance, made directly to the parents of undergraduate students—as part of financial aid they say is reducing (or even zeroing out) the net cost. The New America study found that 15% of financial aid letters deceptively referred to these PLUS loans as “awards.” Fred Amerin, founder of PayForEd, a company that offers software to help employers and families navigate student loans, says that any PLUS loans included in an award should be subtracted when you are comparing the net cost. “Really it’s a finance option of $20,000 or $30,000,’’ he says. In some cases, colleges will also include a private loan option in their financial aid packages.

Note that PLUS loans carry a far higher interest rate and stiffer fees than loans made directly to undergrads. The current rate on these loans is 7.54% and 4.23% of each loan amount is kept by the government as an origination fee, compared to an origination fee of 1.06% on direct loans made to undergraduates.

Experts advise parents to be especially wary about taking out loans right now while interest rates are so high. “Pre-Covid we saw the federal student loan rates coming down, and usually private loans follow suit. And then Covid hit and they went up, but people really weren’t aware because of the [Covid related student loan repayment] pause,” Crane says.

Americans owe a stunning $1.8 trillion on student loans–more than they owe on their cars, for example. Among the fastest growing categories of student debtors are Parent PLUS borrowers. A Century Foundation report last year called parents the “hidden casualties” of the student debt crisis and noted that tens of thousands of parents who defaulted on these loans have seen part of their Social Security retirement or disability payments withheld by the government.

Need More Aid? Ask

Yes, a student can—and should—negotiate with their prospective colleges for more aid if they need it. This negotiation process is typically called an appeal, and a student’s case is much stronger if they can show the college that their financial situation isn’t accurately captured by the FAFSA or other financial documents, says Kantrowitz, who wrote a book called How to Appeal for More College Financial Aid.

“It’s not like bargaining with a car dealer, where bluff and bluster is going to get you a bigger, better deal. It’s mostly driven by special circumstances, which are financial circumstances that affect your ability to pay,” Kantrowitz says. “Financial aid is based on two-year-old income information from the prior year. What if your income has changed? What if your parents lost their job? … Your parents might have high dependent care costs for a special needs child or elderly parents, or high unreimbursed medical and dental expenses that are presumably ongoing.”

An appeal for more financial aid might be successful—particularly if you can show your finances have worsened. “It’s not like bargaining with a car dealer, where bluff and bluster is going to get you a bigger, better deal. It’s mostly driven by financial circumstances that affect your ability to pay,” says college aid expert Mark Kantrowitz.

Colleges often budget for some successful appeals, so it’s always worth an ask, Crane says. In addition, some schools may be worried about summer melt—a phenomenon where current and admitted students withdraw before the fall semester—and may give out more aid to those who ask just to keep their enrollment numbers up.

In addition, if a student misses the cut-off for a merit scholarship before the application deadline, but later improves their test scores, they should appeal for merit aid, Kantrowitz advises. “The reason why colleges offer these academic scholarships is to try to improve their profile by raising their average test score,” he says. “They don’t care if your test score was above their threshold before the admission deadline or afterwards because they still benefit from it.”