This year’s college-bound seniors and their families are beginning to compare award letters. To help you better understand the college affordability factors, PayForED has created six items to consider when comparing award letters.
The lack of financial transparency regarding the financial award letter is a shortfall of the college process. This is especially true when comparing the financial aspects of this decision. The lack of financial literacy can be seen in the current student debt numbers which is affecting over 46 million people.
College award letters only provide a one-year financial snapshot of college and they are not always in a standardized format. This makes it difficult to compare them easily and project the total net cost and debt of each college. Not having the ability to project the financial outcome is a significant shortfall.
We, at PayForED, feel that the proper college financial award comparison needs to include a four-year “WHAT” you will pay and the “HOW” a family will pay for this education. By using this approach, the transparency of the financial outcome will reduce the risk of excessive student debt.
PayForED’s comprehensive approach helps families analyze each award letter side by side easily. It simplifies a very confusing and complex problem by standardizing the information. Our goal is to help families review and clarify the “bottom line” or “net cost” of each college listed on their award letter.
The high school class of 2023 will also be the first to face the financial changes related to FAFSA Simplification. All of these details are still a little unclear but full implementation will be for the school year 2024-25. The current major financial changes are the multi-child college discount and the inclusion of the family business and farm back into the asset portion of the financial aid calculation.
Listed below are the six items a family should review to help improve the award letter comparison and college decision.
Customize Your Cost of Attendance
Every college-bound student should customize their cost of attendance or COA. The COA includes tuition, housing, meal fees, books, transportation, and personal expenses. We recommend that families build their own cost of attendance during this analysis stage.
Families will need to develop both the direct and indirect costs of a college. Direct costs will include tuition, fees, housing, and meal plan. The indirect costs include books, travel expenses, and personal living expenses. When creating the direct cost families, you need to review the academic major, fees, room type, and meal plan for each school on the student’s list. Prices can vary greatly depending on the program, room type, and meal plan selected. A family may find that some colleges mandate that first-year students take the maximum meal plan the first year, but this can be reduced as the student progresses through school.
Understand Each Scholarship List
An important part of the award letter analysis requires the family to separate the merit scholarships from the need-based scholarships. This will better enable the family to identify the net cost over multiple years and help project future net costs. The merit scholarships are the free money given to the student and are a direct reduction of the cost billed by the college.
A merit scholarship is a financial award given to a student based on their specific academic achievement or talent. Most merit scholarships have additional requirements that need to be maintained to receive them in future years. This could include a certain GPA or activity, such as community service or athletic activity. Discussing the scholarship requirements with your child can help reinforce the importance of maintaining their GPA to retain the merit scholarship financial benefit.
A need-based scholarship or grant is an amount that is determined by the student’s Expected Family Contribution/Student Aid Index (EFC/SAI) calculation and financial need. If the COA is higher than the student’s EFC/SAI then the student may qualify for a need-based scholarship or grant. Most colleges do not meet 100 percent of the need.
It is also very important for the family to review their own family timeline and see how this impacts your EFC/SAI calculations over the next four years. The EFC/SAI calculation will be changing due to FAFSA Simplification. Prior to this families received a reduction in the financial aid position or EFC/SAI when multiple children were enrolled in college. This change will have a dramatic impact on your future financial award due to the changes in your financial need starting in the school year 2024-25. Proper planning is recommended.
We recommend that if you are unsure of the type of scholarship on the award letter you should contact the college for clarity. Many colleges will only list it as a scholarship and do not disclose it as a merit or need-based scholarship.
Self-Help Money: Loans and Work-Study
Loans and work-study are considered self-help money on the award letter and are dependent on a student’s financial need each year. The self-help details are directly related to a student’s EFC/SAI. Each year, a FAFSA needs to be completed. This will allow the student to qualify for federal direct loans. The type of federal loans will again depend on the student’s financial need that year.
Subsidized vs Unsubsidized Student Loans
Identifying the type of student loan that you have been awarded can be confusing. When looking at your award letters, you may see only a federal unsubsidized loan for one school while another school lists both federal subsidized and unsubsidized loans. This is determined by your financial need at each college.
The student’s financial aid need will vary between schools. The variance in college cost and the student EFC/SAI will determine the mix of student loans in the financial award. Most first-year freshmen will normally see a combination totaling $5,500.
Warning on Parent PLUS loans
Some colleges will list a Parent PLUS loan in the financial award. This loan is legally the parent’s responsibility. It can often distort the true net cost of a college. When comparing colleges, we recommend this amount be removed at the comparison stage as it may distort the analysis.
Work-study programs offer the undergraduate a part-time job each semester while they are in college. Unlike the scholarships and loans, this money will not offset the direct college expense. The award is dependent on the student filing the FAFSA form and is awarded based on need. It is used to offset other costs such as living expenses and books.
Projection of the Four-Year Net Cost of College – “Your WHAT”
The award letter provides only a one-year look at the cost of college. This is a shortfall in the process. It does not provide a projection of the four-year cost and debt. To make the best college financial decision, a family will need to understand and project the four-year net cost of each college. Creating this analysis can be overwhelming and difficult. Taking the initial award letter and multiplying it by four is not a good approach.
PayForED has a college funding software that can provide the missing detailed comparison for your award letters. It helps students and parents make informed decisions. Families can review their financial position by creating a four-year analysis. This can help a family better identify the true value of a college and make a better decision on what the family will pay through graduation.
Projecting Student Debt – “Your Customized HOW”
After developing a four-year net cost of college, families need to determine how they will pay for these expenses. It leads us to the next important step which is the “HOW.” A family’s “HOW” may include a college savings plan (i.e. 529), monthly cash flow, tax strategies, and student loans. After understanding these numbers, students will have a general idea of how much debt they will acquire during their education.
Often overlooked is the importance of the student loan structure. A student’s debt structure will determine the student’s repayment options in the future. By better understanding how to use your financial resources and structure the student loans, families will plan better for the future and have an easier repayment process after graduation.
Colleges promote how much financial aid they provide, creating a level of hope and an emotional tie for students. Cost and debt are rarely discussed during the application process. If you have a better estimation of “WHAT” you will pay, then you can make informed decisions on “HOW” you can pay this expense.
Most parents do not understand the legal consequences of federal student loan options. Each student is limited to a certain yearly amount as well as a lifetime limit. These federal student loans are the student’s full legal responsibility. If additional resources are needed, a family may need to obtain a Parent PLUS Loan or co-sign for a private student loan. In both cases, these loans are directly the legal responsibility of the parent. These loan decisions could impact the parent’s credit score and possibly their financial future.
Other items that students may fail to consider during their decision process are the retention and graduation rates for each college. Reviewing the retention gives insights into the transfer rate for the college. If a student transfers to another college, most students will lose credits hence more student debt or tuition at the very least. Lower graduation rates at a college may indicate that students are not graduating in four years. It is important to discuss the cost associated with not attaining the desired degree in four years and the cost of another year of school. When looking at the retention and graduation rates, make sure that the data is current. Always check the year of the statistics given by any institution.
The family needs to evaluate each college and see if their child’s personality will thrive in the environment at that institution. Be comfortable with the decision. A state school may be more cost-effective, yet you need to determine if your child will thrive in a larger learning environment. The best way to save money is to graduate on time.
Comparing Financial Award Letter Approach Summary
During this period, the emotion and stress of the college decision are high. At PayForED we make it our job to equip the student and parents for success. By providing an easy-to-use comprehensive student loan solution, student loans can be minimized and excessive student debt can be avoided. As part of the award letter comparison, we often recommend that students talk to peers that are in college or have recently graduated from that college. It may help in the decision process.
If you plan to use a private loan to help supplement the cost of paying for college then PayForED can also help with our Private Loan Market Place.
PayForED’s Preferred Private Student Loan Lenders
Variable Rates: 5.09%- 15.99% (APR)* Fixed Rates: 4.44% - 15.99% (APR)* Variable Rates*: 6.12% – 16.45% Fixed Rates*: 4.50% - 15.49% Variable with ACH: 6.15%- 16.08% Fixed with ACH: 4.48% - 15.81% Variable Rates: 4.98% - 12.79% (APR)* Fixed Rates: 4.48% - 12.29% (APR)*
Variable Rates: 5.09%- 15.99% (APR)*
Fixed Rates: 4.44% - 15.99% (APR)**Rates includes .25% Auto Pay Discount
Variable Rates*: 6.12% – 16.45%
Fixed Rates*: 4.50% - 15.49%*Lowest rates shown included auto debit discount
Variable with ACH: 6.15%- 16.08%
Fixed with ACH: 4.48% - 15.81%
Variable Rates: 4.98% - 12.79% (APR)*
Fixed Rates: 4.48% - 12.29% (APR)*