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Decoding Your Financial Aid Award Letter

It’s that time of year again. The time when college applicants will begin to receive their acceptance letters to the schools of choice. If you did the FAFSA and/or the CSS Profile, that letter might come with a notification from the Financial Aid Office that tells you how much the school is willing to offer you in financial aid. But the problem is that you have no idea what it all means. Your schools use words you don’t understand … and the letters all look different. You feel lost and frustrated, but there is hope!

This post will help you understand your financial aid award letter and what to do when you’re ready.

The Financial Aid Award Letter … Decoded!

This letter takes on many names, such as “Award Letter,” “FAFSA Award,” Financial Aid Offer,” “Financial Aid Package,” and “Financial Aid Notification.” As you can imagine, since the names are different the contents are probably different too.

Let’s start with some of the key terms you’ll see in your award letter.

The Cost of Attendance (COA) is required by law to be disclosed to you. It estimates your cost to attend the college for one school year. It is made up of components such as tuition, fees, room, board, transportation, and books. It is not a bill from the school, or an amount you are required to pay in full. This number will be different for each school.

Your Expected Family Contribution (EFC) is the number you received when you completed your FAFSA. It is a federal calculation that determines your family’s expected contribution toward your education for that year and should be the same for all schools. This figure is used together with “financial need.”

Financial Need is the difference between the cost of attendance and your expected family contribution. Since your cost of attendance will be different for each school, your financial need will be different at each school.

Gift Aid is typically money that you receive that you are not required to repay. It can come in the form of grants or scholarships and may be “need-based” or “merit-based.”

Need-Based financial aid is available based on financial need.

Merit-Based financial aid is not based on financial need, but on academic achievement or skill.

Student Loans are dollars that must be repaid, with interest. While these loans may appear on your award letter, you are not required to accept them.

The Work-Study program provides you with a job through the school. The program is need-based and provides you with a real paycheck.

Most Common Types of Financial Aid You’ll See

Here are some of the more common ones that you’ll see, depending on your eligibility.

  • The Federal Pell Grant is the government’s grant entitlement program for eligible students, meaning if you are eligible, you’ll get it. The most you can receive in a Pell Grant is $6,895 for the 2022-2023 school year. This amount is set annually by Congress, usually in January.

  • A Direct Subsidized Loan is a federal student loan that must be repaid, with interest at a fixed rate. As a bonus, the government pays the interest on this loan for you while you are in school.

  • A Direct Unsubsidized Loan is a federal student loan that must be repaid, with interest. You are responsible for all interest that accumulates at a fixed rate.

  • A Direct Parent PLUS Loan is a loan federal loan that a parent is responsible for. It has a fixed rate and requires a credit check.

  • A Federal Work-Study award is a financial aid award based on a real paying job at the college.

Other sources you might see include grants or scholarships from either the state the school is located or the school itself.

The Gap

You may notice in your award letter a financial “gap” that exists in between your costs versus your financial aid. This figure is something that you would be required to fund, but your college won’t necessarily spell that out for you. You may also receive little direction on how to do that. Here are some quick options to consider:


1. Payment Plans – monthly payments to the school

2. Private Loans – credit-based loans with variable interest rates

3. Income Share Agreements – contracts with you school that provides you with education funding in exchange for a percentage of your post-graduate income

4. Outside Scholarships – scholarships from private sources, such as community organizations or businesses


It is also important to note that some schools will add the Parent PLUS loan onto your award letter to fund the gap. BEWARE! This loan requires your parent to apply for and be accepted for the loan based on their credit history. It is not a guarantee that your parent will be approved for this loan, or that they will want the loan in the first place!

How Do I Compare These Awards?

A simple Google search of “Financial Aid Award Letter Examples” will show you just how many different formats these things come in. The challenge comes when trying to compare awards across schools. How do you do this when your financial aid award is given to you in so many different formats? Here are some tools to use to help:

1. College Financing Plan – A standardized format to disclose your financial aid award and other important information. Unfortunately, colleges are not required to use this, but you can always ask for it.

2. Award Letter Analyzer –This spreadsheet al lows you to pick off the details from your award letters and plug them into one spreadsheet to get to your net cost (courtesy of McKenna Hensley, NPR ).

Things to Think About …

Make sure you read. Didn’t see any student loans in your award letter? Some schools don’t include them in your aid package. Worse yet, some schools don’t even use the word “loan” in the award description, even when a loan is being offered to you! If you are interested in a loan, ask your Financial Aid Office.

Some schools will only show your financial aid award and not compare it to your costs to attend. Without knowing the costs, how will you know what it will cost you?

Other schools will just show you one big “financial aid” number, and not tell you what the sources are. Wouldn’t you like to know if your financial aid contains a student loan?

Take a close look at each financial aid award and see if it carries any requirements for receipt. For example, are you required to take a full-time load of classes? Is it renewable every year with a certain GPA? Will you get the same amount each year?

Remember, these letters and the financial aid awards in them are only good for one year of college. Think one FAFSA per year equals one financial aid award per year. It could also mean you have more than one year of student loans to think about.

Action Items

Now that you can understand your award letter and you’re able to decide where you are going to school (or not going to school), here are some next steps for you:

1. Pay attention to key deadline dates for a response to accept or decline your financial aid. If you don’t accept on time, your grant or scholarship funds may go to someone else!

2. Look to see if there are any other documents the Financial Aid Office needs from you, such as a loan application or scholarship document.

3. Follow any other instructions provided and do them on time!

If there are any lingering questions, don’t be afraid to call your Financial Aid Office, they are always happy to help you!

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