It's been more than 15 years since I began looking through financial aid letters. At the time, I organized my school choices by scholarships I received, and only thought about student loans after looking over the scholarship awards.
However, it's not always that cut and dry when it comes to reading financial aid letters these days. Often all of the information is lumped together, and it's hard to separate the scholarships and grants from the loans, according to an article on Yahoo! Finance.
According to the article, here are some of the items that trip up parents and students as they attempt to make informed decisions about where to attend school based on cost:
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Missing Costs
Sometimes, you don't end up with information about the total cost of attending the school. Anyone who has attended college knows that it's not just about the tuition and fees. There are living costs associated with college. From food and board, to books and other costs, the cost can really get out of hand.
Don't rely on financial aid letters to help you nail down total cost. The Consumer Financial Protection Bureau can help, as can the College Board. Get the total picture so that you know how much you will be short on total costs after financial aid is applied.
Is It a Loan, or a Scholarship?
Many aid letters don't make it clear how much being offered is the result of a federal student loan, or a parent loan (PLUS). In some cases, a letter might list the total aid at $20,000 a year, but it's not clear that only $5,000 of that is in scholarships and another $5,000 in grants, leaving the remaining $10,000 as student loans each year. Additionally, the Yahoo! Finance article points out that sometimes the financial aid letters only use designations like “LN” to let you know that something is a loan. You might not be clear on these designations, and think that you are completely covered from non-loan sources when you aren't.
It's important to carefully examine financial aid letters and separate out the gifts and grants from the loans. You should also look carefully for terms and conditions. One of the “full ride” offers I received from one school specified that I had to live in a specific dorm and that I had couldn't change my major from physics. If I had accepted that offer, I'd be on a completely different career path — or saddled with even more student loan debt than I have now due to a change of plan during college.
If you have questions, call the school and talk with a financial aid counselor who can provide you with specific information about what's what.
Watch Out for Front Loading
Finally, the Yahoo! Finance article warns that you could be looking at front loading. This is a practice in which schools offers more grants for the first year (and maybe the second year), and then switches to loans later. It looks like you are going to school for free — and you are for a year or two. But then your aid changes to something that has to be paid back. Be on the watch for this sneaky trick to make you choose a school that might cost more in the long run, even though you are going for free initially.
You always have to pay careful attention if you want to avoid costly surprises down the road.
I’ve known quite a few people get burned by front loading. Its best if you can get that scholarship guaranteed for all four years of school. Obviously that may not be the case for what you were offered, but its a good comfort to have them promise to commit to that extent!