Understanding Financial Aid Award Letters: Everything You Need to Know

Discover what financial aid letter terms mean and how to compare your financial aid offers

Congratulations! You’ve already received a few college acceptances and you’re feeling over the moon right now. All your hard work has paid off, and you’re so close to seeing your college dreams come true.

You’ve also started receiving financial aid award letters. These can be exciting, too, but also a bit confusing.

As you look over the different financial aid award letters you’ve gotten, you probably have a lot of questions. Why does each letter look different? What does each term mean? What’s the bottom line cost? And which college is the most affordable option for you?

Isn’t it frustrating that understanding and comparing financial aid offers isn’t more straightforward? Well, don’t worry. As a virtual college planning consultant, I’ve looked at more than my fair share of financial aid award letters, and I’m here to share all my knowledge with you.

Keep reading to learn about the information you’ll find on your financial aid letters and what red flags to look out for. Plus, I’ll share an easy method to compare financial aid offers and make a wise college choice.

What information is listed in a financial aid award letter? 

Let’s start by clarifying what a financial aid award letter is and what it contains. Financial aid offers come directly from colleges, and they reveal what aid you qualify for based on your merit and your family need—as determined by the FAFSA.

Your financial aid award letters might contain a lot of terms and abbreviations you’re not familiar with. To help you better understand what you’re reading, I’ll define some of the most common things you’ll see on your financial aid offers.

Cost of Attendance (COA)

A college’s cost of attendance refers to every expense you might encounter as a student. This includes:

  • Tuition and fees – the cost of your classes and student resources
  • Room and board – the cost of living on-campus and having a meal plan
  • Books and supplies – the cost of textbooks and other school equipment
  • Personal expenses – the cost of necessary personal items (for example, shampoo and deodorant)
  • Transportation – the cost of traveling around the area, as well as going home for breaks
  • Other – the cost of miscellaneous items you might need throughout the year

Now, here’s the tricky thing to know about the cost of attendance—it includes both direct costs and indirect costs. 

Direct costs are what you’ll owe to the school directly. This includes tuition, fees, room, and board. These items will get billed to your student account.

Indirect costs are the other outside expenses you’ll pay for at the grocery store or gas station. You won’t get billed by the college for these items. But because they’re still part of the total cost of being a college student, they’re important to consider and plan for.

Expected Family Contribution (EFC): 

Your expected family contribution is a dollar amount the FAFSA has determined your family can afford to contribute throughout the year toward your college education. Colleges, as well as scholarship and grant organizations, use this number to figure out how much aid you qualify for.

Scholarships and Grants:

Scholarships can be awarded based on your merit (academic, musical, or athletic talent) or your family’s financial need. They’re most often offered by colleges and outside organizations.

Grants are primarily awarded based on your family’s financial need. They’re usually offered by the federal or state government.

While the source and basis of scholarships and grants differ, the important thing is they’re both free money! Meaning you’ll never have to pay them back.


You might qualify for federal work-study based on your family’s financial need. To put it simply, the work-study program is an opportunity to work part-time at your college. The difference behind-the-scenes is that the government pays your wages, rather than the school.

One thing to note about work-study—you’re still responsible for applying and getting hired for an on-campus job. And you’ll receive your work-study “award” as a paycheck based on your hours worked. It’s not money you’ll see upfront.

Student Loans:

Unlike scholarships and grants, you’ll have to pay back student loans after you graduate from college. You might see different loans on your financial aid award letters, including:

  • Direct Subsidized or Unsubsidized Loans – you take these out yourself
  • Direct PLUS Loans – your parent has to take these out
  • Private Loans or University Loans – you take these out yourself, often with a co-signer

For now, the important thing to know about loans is they’re totally optional. You can choose whether you want or need to accept them.

Remaining Cost or Net Price: 

Most financial aid award letters will state how much you’ll have to pay out-of-pocket to attend that college—it’s the remaining balance after all your aid is applied. This is the most important number to consider when comparing financial aid offers between colleges.

What are the red flags to look out for in financial aid award letters?

If every financial aid award letter contained all the terms I listed above in a clear, organized way, understanding and comparing financial aid offers would be a breeze. But unfortunately, that’s not the case. Financial aid letters come in all shapes and sizes.

Some financial aid award letters are poorly formatted. Others are missing key information. And a few seem almost intentionally misleading. It makes your job of comparing financial aid offers much more difficult.

So here are the most common confusing or misleading things you’ll find in financial aid letters and how to handle them:

Missing Cost of Attendance

Some financial aid award letters include your aid only, without telling you how much the total cost is. If that’s the case, you’ll have to do some research on the college’s financial aid website to find the COA.

Missing Remaining Cost or Net Price

You might not see your remaining balance clearly spelled out in your financial aid offer, in which case you’ll have to do the math yourself.

Confusing Abbreviations

Financial aid award letters can seem like they’re written in a foreign language, especially when important terms are shortened or abbreviated. Don’t be afraid to call the financial aid office to ask for definitions and explanations.

Incorrect Housing Plans

If you’re planning to live on-campus, make sure room and board are listed among the costs of attendance. If it’s missing, you’ll have an incorrect idea of what your remaining balance is.

Semester Cost instead of Annual Cost

This is a downright sneaky method I’ve seen a few colleges use. The financial aid offer lists just the fall semester cost and aid, not the full-year costs. If you don’t notice it and recalculate, you’ll underestimate your balance. So you might think you have a $5,000 balance for the year, but it’s actually $10,000. Yikes!

Large Work-Study Awards

If you want to work part-time as a freshman, you can reasonably expect to earn $3,000 throughout the year, while still making time for homework and enjoying your college experience. But if a financial aid offer lists $5,000 as a work-study award, remember you’ll have to earn it by working lots of hours—possibly too many to manage.

Parent PLUS and Private Loans

All loans are optional, but these two specific types of loans aren’t even guaranteed. You (or your parents) have to qualify for them based on credit. Even if you do, you might not want to take out these loans. 

But I’ve seen some colleges sneak them into the list of awards like they’re hoping you won’t notice. Don’t fall for it! Recalculate your total financial aid amount and remaining costs without these loans to get accurate numbers.

Phew! What an ornery list of red flags. Hopefully, you won’t encounter all of them in your financial aid offers. But now you’re informed and prepared to handle them if you do.

How to compare financial aid award letters

Now you know how to read financial aid award letters, and you won’t be fooled by confusing or misleading information. You still need to compare the different financial aid offers in front of you. Here’s a step-by-step way to do just that. 

When you’re finished filling out your spreadsheet, you’ll have the remaining costs of each college listed side by side so you can easily see which are out of your budget and which are great options for you.

  1. Create a spreadsheet. 
  2. Make individual columns for each of the schools that have sent you financial aid offers.
  3. Make separate rows for the following items:
    1. Total COA
    2. College scholarships 
    3. Federal and State Grants
    4. Outside scholarships
    5. Student loans (the ones you want to accept)
    6. Remaining Cost
  4. Fill out the spreadsheet using your financial aid award letters
  5. Subtract the scholarships, grants, and loans in the first column from that college’s COA, which will give you the remaining balance, or your out-of-pocket cost. 
  6. Repeat for each column.

You might notice, I didn’t include work-study on this spreadsheet. That’s because you don’t receive work-study money upfront. You earn it slowly through paychecks as you work every week. It’s better used as a method to pay off your remaining costs throughout the year in a payment plan.

And of course, there are other ways to pay or take care of these remaining college costs—parent contribution, personal savings, summer jobs, additional outside scholarships, or additional loans. Talk to your family and see what’s right for you.

Final thoughts about financial aid award letters

We made it! Now you have all the knowledge and tools you need to clearly understand your financial aid award letters and compare your financial aid offers. 

You can use the remaining costs you calculate to determine which colleges are good financial fits for you and your family. Then, you’re ready to make your ultimate, long-awaited college decision. Have fun!

I’d love to hear from you as you review and compare your financial aid award letters. Are there any confusing terms or red flags that I missed? Drop a comment below to let me know!

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