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COLLEGE FINANCIAL AID HOW-TO:
UNDERSTANDING YOUR FINANCIAL AID AWARD LETTER

An Award Letter Interpretation Guide that Answers the Question:
What Do I Really Have to Pay?

New York – April 28, 2008 – Right now is when parents and students are trying to decipher the financial aid award letter that just came in the mail. Doing this often leads to anxiety as each school seemingly has its own format and style for how they communicate a financial aid award, leaving many families at a disadvantage when it comes to being able to truly determine what they will be expected to pay.

“This is the time when many families are facing the realities of financing a college education. It is not an easy process, particularly when it comes to comparing institutions and determining which is offering the most aid,” said John P. Derham, an officer at MyRichUncle. “Knowing how to read and understand the financial aid award letter is critical. Often, it is hard for parents and students to distinguish which elements of the letters are free aid awards such as scholarships and grants, from those that need to be repaid. Understanding these elements will give parents and students a more realistic budget picture.”

Here are a few key guidelines to help deconstruct a financial aid letter and determine what you will have to pay yourself:

Know That Costs Go Beyond the “Cost of Attendance” Provided by the School

• “Cost of attendance” is an estimate assigned by the school that includes both fixed costs, such as tuition, and variable costs, such as housing, meal plans, transportation, books and other personal expenses.
  
  But there are other costs. Parents and students should think about variables such as car payments and gas if the student has a car; the type of meal plan that will meet the student’s needs, and whether the course load will require additional books or fees.
  
  Having a realistic cost of attendance allows parents calculate their finances with respect to aid in a more practical, reality-based way.
  
  

Understand What Part of the Package is “Free Money”

Free money consists of scholarships and grants:

• Scholarships – The school may elect to award the student an institutional scholarship. It is important to understand what it will take for the student to maintain that scholarship throughout their college career.
• Grants – The most common ones are federal grants, such as Pell, FSEOG, ASG and National SMART Grant, and state grants. Certain grants may have conditions, as well, that the student must meet before they can be renewed each year.

Understand What Part of the Package is NOT Free

Not all financial aid is free aid. The school will identify the amount the student has qualified for in the form of Federal Loans and Work Study, neither of which is free money. Federal student loans include Perkins, Subsidized Stafford and Unsubsidized Stafford Loans. Money that must be earned is provided in the form of Work Study. Because loans require repayment, these should not be included in the free aid calculation.

Some schools may also list PLUS Loans in the financial aid award letter. Parents should know that these are loans in their name, and repayment usually begins shortly after the funds are fully disbursed. These should absolutely not be considered as part of the aid award.

Once parents get a clear picture of the cost of attendance, they should subtract the amount of free money awards from their total cost of attendance calculation to determine the amount they’ll need to contribute to finish funding the school year. Parents should know that, if borrowing is a reality, they should start by maximizing the Federal student loans (Perkins, Subsidized and Unsubsidized Stafford) the student qualifies for. This is because Federal student loans are generally lower cost, since they are backed by the Federal government. If there is still a funding gap, consider the options and shop around. Families should borrow the absolute minimum required to fund the remainder -- and not a penny more.

Stop by MyRichUncle.com

MyRichUncle has recently launched a suite of guidance tools on www.MyRichUncle.com. Highlighted on the site is the step-by-step process to follow for determining financial aid, which includes a tutorial on how to read the Student Aid Report and a financial aid award letter deconstruction guide, which will help to highlight what families will really have to pay.

“With a clear picture of an institution's true cost of attendance, and a better understanding of the differences between free money and money which needs to be earned or repaid, families will be better prepared to plan accordingly,” said Derham. “The tools and guidance on MyRichUncle.com are designed to educate and empower families to make the best financial decisions regarding the financial aid process.”

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