March is the time of year when high school seniors and their parents start receiving financial aid award letters from the various colleges to which the student has applied. In these letters each college will list out a variety of financial aid awards that can help reduce the family’s out-of-pocket costs for college. Once you start lining the letters up and trying to compare them against each other, though, it can get a bit confusing. All financial awards are not created equally, so it is important to understand their differences. Here are some of the variations you can expect to see in financial aid award letters:
• Merit-Based vs. Need-Based: There are different types of grants and scholarships your student may be eligible to receive from a school based on academic or other performance. These are merit-based awards. If you feel that your child’s achievements have not been properly recognized through the merit awards, you can ask the financial aid office if you can supply supplemental information. Need-based awards are based on the financial information you provided when completing the FAFSA. If these amounts seem low compared to your income, check your FAFSA again and correct any inaccurate information, or try to submit additional information which might justify an unusual financial situation.
• Grants and Scholarships vs. Loans: Grants and scholarships are monies that do not usually have to be repaid, unless the student fails to meet the specified criteria. Some colleges also list student loans as part of the financial aid award package. Be sure you understand how much of the award is in loan form, as this is money that will have to be repaid once the student graduates or leaves college.
• Work-Study Program: This technically doesn’t fall into either category as “free” money or money that will have to be repaid, as it is money that will have to be earned. Make sure your student understands that he or she will be required to set aside a certain amount of time from studying or extracurricular activities in order to meet the requirements of the work-study program.
• Federal and Private Student Loans: Most college financial aid award packages will include information on federal student loans for which the family is eligible. While amounts and interest rates are standard for all federal student loans, there can be a wide variety of terms available from different private student loan lenders. Information on federal student loans is easily available, but you must draw up a list of criteria and carefully weigh any private student loans before making a final borrowing decision.
Financial aid isn’t the only thing which should affect your choice of college, but it does play an important role in the decision-making process. Be sure you understand all of the financial aid opportunities clearly, and then take into account such intangible factors as school fit, course selection, and potential earning power to find the college that’s just right for you.