college students walking through campus

When my son got one of his college acceptance letters, we were elated. Of course, the most exciting part was that he had been admitted into the college, but the acceptance letter also came with what looked like a hefty merit scholarship award. Until, that is, we read the fine print. That big headline number that had sparked the excitement actually contained the sum of two elements — the merit aid, which is an amount that won’t have to be repaid, combined with the federal loan, which does.

So, while his merit award was still decent, it wasn’t quite as generous as we had assumed on first glance. Knowing exactly what your award letter means is vital to making sure that you are financially prepared for what comes next over your college years. And one study found that a surprising one-third of acceptance letters had missing cost information. That can be catastrophic when you consider that there is more than $1.5 trillion of student debt in the United States.

Here are tips for decoding the different line items on your letter. 

Scholarships

Also known as merit aid, these are the funds that schools are offering students based on special skills — whether academic, athletic, artistic or some combination. Some schools, usually state schools, will list their academic scholarship eligibility right on their website — it’s often an aggregate of your GPA and standardized test scores. Other times they will use a formula that is known only to them, which makes your financial aid letter a surprise.

In the letter, most schools will itemize the funds you’ll receive per semester, and in most cases these scholarships are renewable for four years for full-time enrolled students as long as they maintain a certain grade point average. However, you should scrutinize the math to make sure they haven’t already multiplied it by four. That’s a little trick schools sometimes use to make a $4,000 annual scholarship look like a $16,000 annual scholarship.

This represents money you won’t have to pay back, although it may be revoked due to your eligibility to play a sport or if your grades drop below a certain threshold.

Grants

This line item is also money that you don’t have to pay back and is offered based on the amount of “unmet need” you have, as determined by filing the Free Application for Student Aid (FAFSA). In most cases, you will have filled this out during the application process, but if you haven’t filed one yet, be sure to do it immediately. You may be eligible for federal and/or state grants, based on need that is typically related to family income.

Loans

As you might guess, a loan is money you will need to pay back. Almost every student enrolled in an accredited, full-time program qualifies for a Federal Direct Loan, regardless of family income. The loan limit is $5,500 annually for a first-year student, $6,500 annually for a second-year student and $7,500 annually for years three through five, subject to an aggregate loan limit.

These loans come in two types — subsidized and unsubsidized. Direct Subsidized Loans are offered to students with financial need, as determined by FAFSA. The federal government covers the interest on part of these loans while the student is in school. By contrast, if you are offered a Direct Unsubsidized Federal Loan, interest will start accruing immediately, although you don’t have to make payments on the principal until six months after graduation (or if you drop below half-time status). More information on these loans and their limits is available at StudentAid.ed.gov.

Of course, you don’t have to opt in to any of these loans, but if you haven’t saved adequate funds to pay the entire college bill, these typically offer lower interest rates than private loans, so it can be a smart option, provided that borrowing money is part of your plan.

However, given the burden of student debt and how it can affect your financial future, be sure to make your decision to borrow carefully. (You can take a look at projected loan payments using this calculator once you have an account.) Looking into all your options – from state schools to community colleges – is important as you consider your overall costs.

Additional Costs

After the school has summarized your financial offer, they should then provide an overview of what the school costs. There are a number of categories, which typically include:

  • Tuition
  • Fees
  • Room: This can fluctuate based on the dorm and room; some dorms have cushy suite-style rooms that will cost more than a bare-bones triple you share with two other roommates.
  • Board: This is another potentially variable cost depending on the meal plan you choose. If you rarely eat breakfast, you might want to opt for a plan that covers fewer swipes than an unlimited plan, for example.
  • Extras: Schools will often offer a dollar figure that includes books, supplies, personal expenses and travel, but remember, it’s just an average. Your supplies might be more as an art major, and your personal costs could go up if you join a club or are traveling from out of state.

The Bottom Line

Often the school will tally up the costs and reduce it by the scholarships, grants and loans to give you an “Estimate Cost of Attendance.” But remember, that number will include both the money you will receive free and clear and the money you will have to repay. So, if you have received multiple acceptances, make sure to do all the math so you’re making an apples-to-apples comparison of bottom lines. Schools that offer more loans but fewer grants might look like they are less expensive, when in reality you’ll have to repay more money.

Taking an eagle eye to your college acceptance letter is vital in making sure your first tuition bill doesn’t include any unpleasant surprises and that you’ve made the right choice for your financial situation.

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