You are living the dream, having been accepted at a number of colleges.
The financial aid award letters arrive, and your dream turns into a nightmare as you try to decode their contents. Why can't these bastions of higher education compose simple, easy to understand offers? Is it they don't want the offers to be too easy to understand?
Families across the country are spending this month poring over award letters. And although efforts are underway to streamline award letters, that won't help your family in the coming days.
Let's look at five things that might help you.
Compare apples with apples: Colleges take great liberties in describing their aid, but there really are only three types — gift aid (grants and scholarships), work-study and loans. Identify each component of your package as being in one of those three categories so you understand what you are being offered.
The total cost of college is known as the cost of attendance, and you will want a figure for each school. The largest items are paid directly to the school: tuition and fees and, for most freshman, room and board. However, the COA also includes an allowance for books, travel and personal supplies. The figures that the college estimates are done for financial aid purposes only, and do not represent actual charges to you. For each college, divide the cost into two categories: The charges you will pay directly to the school, and the other costs your son or daughter will have that are more under your control.
Is the package good for four years? Ask the financial aid office which gift aid items will automatically renew in future years. This is especially true if you are awarded a merit aid scholarship from a private school. If your package includes need-based aid, you will have to qualify each year by filing new financial aid forms. Understand which items in your award are need-based and which are not.
You don't have to take it all. Yes, you want all the grant aid you can get, but many students think student loans are an all or nothing proposition. That is not the case. Students who file the Free Application for Federal Student Aid qualify for federal loans of $5,500 as freshmen, $6,500 as sophomores and $7,500 the last two years. However, if you only need $1,500, then you should only borrow $1,500. It will not change the annual amounts you can borrow in future years.
Some college programs cost more than others. For example, the University of Virginia charges a "differential tuition" of $4,000 for those in the McIntire School of Commerce next year. A number of schools charge more for their engineering, nursing or business schools. You probably won't see those figures in your freshman award letter, so do some digging to find out if these extra charges are in your future. Ask the financial aid office if there are any differential tuition charges or fees for certain programs.
Give your kids the gift of financial literacy. Ask a group of high school students how they fare in knowledge of financial topics and you routinely hear "barely passing." It doesn't improve much at college when they are all together with even less influence from parental wisdom.
Review the financial aid letter with your teen so he or she can see what college will cost your family. If the package includes loans, ask your teenager to calculate the monthly payment after four years of loans. Then focus on the discretionary costs: Ask your son or daughter to put together a budget for living expenses for freshman year. Discuss travel costs, and get their input on ways to save money on textbooks. Teenagers want this sort of financial guidance from parents.
Colleges might not make it easy to decipher award letters, but the obfuscation can be tempered with just these few simple steps.
Jonathan West is director of the Richmond, Va.-based College Funding Group.