Deciding which college is the best choice for your student requires viewing it from several angles—academically, socially, and financially.
And while they’re all important components, the financial piece—specifically, financial aid—can be a deal-breaker or a deal-maker. That’s why it’s critical that you scrutinize your child’s , which may look different from one school to the next. To compare award letters, here’s what to do after you receive them.
Understand Scholarships and Grants
Scholarships and grants are free money that does not need to be paid back. Scholarships can be merit-, interest-, or need-based, while grants are generally need-based. They can cover one year of college to all four years as long as the student maintains the eligibility requirements. For example, scholarships usually require the student to maintain a certain GPA, but some may have income requirements as well. It’s vital that you grasp the differences between and terms of your student’s scholarships and grants. If the award letter seems unclear, Jodi Okun, founder of College Financial Aid Advisors, recommends searching the college website for the grant or scholarship name or calling the financial aid office.
Understand How Work-Study Works
The Federal Work-Study Program is a need-based program subsidized by the federal government, and eligibility is determined by information from your FAFSA® (Free Application for Federal Student Aid). Students work at a college or qualifying business for wages that are paid to them directly versus being applied to their tuition bill. “It’s a part-time job, and the money has to be earned,” says Okun. “Plus, being eligible for work-study does not guarantee a job, so students should apply early.” If work-study is on your child’s award letter, find out how they can apply for a job on the school’s website before they get to campus in the fall.
Understand the Types of Federal Loans Offered
The two most common federal student loans are the Direct Subsidized and Unsubsidized loans. Both are taken out in the student’s name and a credit check is not required. Subsidized loans are need-based, and the government pays the interest while the student is in school at least half-time and during grace and deferment periods. Unsubsidized loans are not based on need, and the student is responsible for repaying the full amount of the interest accrued. Both subsidized and unsubsidized loans have fixed rates and origination fees, which are deducted from the loan amount. Students can defer payments until six months after graduation or when enrollment drops below half-time. There are several repayment options, including the Income-Based Repayment Plan and the Pay As You Earn Repayment Plan.
For undergraduate students, parents can take out Direct PLUS Loans to pay for their child’s education. Graduate and professional students can also borrow PLUS loans to pay for their graduate studies. All borrowers must pass a basic credit check. These loans are usually offered when a student has unmet need. “Look for the ‘gap amount’ on an award letter,” Okun says, noting it might not be clear that the PLUS loan is in fact a loan. Parents can apply for this loan at StudentAid.gov, but some schools may have additional steps. PLUS loans have higher fixed rates and origination fees than subsidized and unsubsidized loans. Repayment starts immediately for undergraduate PLUS loans and there are a variety of repayment plans, but you can request in-school deferment, which means you don’t have to start making payments until after the grace period ends.
In-school deferment may seem like an attractive option, but unless your student has Direct Subsidized Loans, waiting to start repaying loans until after the grace period ends will mean paying more in interest. As a result, making even small payments while in school can help reduce the total cost of any loan.
Factor in Indirect Costs
While award letters may not include all indirect college costs, they are worth considering when evaluating aid packages. These costs can vary greatly depending on location, school, and major. “What a student is majoring in can have an impact on indirect costs,” says Joanne Wilson, president of Wilson College Consulting, who recommends setting aside $5,000 for the first year. “An art major may incur more indirect costs than a history major because they’ll have to purchase additional supplies.” Think about what your student plans to do while at school and research those costs individually. Include that number in your estimated total cost and plan your budget accordingly.
Calculate and Compare Total Cost for Each School
Once you understand the terms of your student’s award letters, you’ll want to compare the costs of schools against one another. Comparing several schools can get tricky, so it helps to devise a system. You could plug all the numbers into a spreadsheet or use this helpful award letter comparison tool that can do the work for you. Ultimately, you want to figure out the total net cost for each school and compare those numbers.
Appeal or Negotiate Your Financial Aid Offer
If your financial situation has changed since completing the FAFSA, you can file an appeal with the college financial aid office. If you need help crafting your letter of appeal, start with SwiftStudent, a free resource built to empower students and parents through the financial aid appeal process. The site offers information, guidance, and customizable financial aid appeal template letters that can streamline your appeal process.
If your financial situation remains the same but your student’s award package is not what you’d hoped for, you can negotiate it. “The best way to negotiate an offer is to go to it with another offer,” says Julie Gross, founder of College Financial Consultants. “A lot of people [try to negotiate] as soon as they get the award letter—especially if it’s their child’s number one choice—but schools are going to be much more motivated if they see there is a better offer.”
Have the Money Talk with Your Child
If your child’s first-choice school is not the best choice financially, you may need to sit down and have that discussion. “I would offer a good, long lesson on what debt looks like once they’re out of college,” says Gross. Explain how debt can impact your student’s future decisions about their career and lifestyle if they take on too much. With a clear understanding, you can decide together what you and your student can reasonably afford.
About the Author
Jodi Okun is founder and president of College Financial Aid Advisors. She is also the About.com Money Expert on “Paying for College,” and acknowledged by The Huffington Post as one of the “Top 30 Social Influencers in Personal Finance & Wealth.” She has been featured in The Wall Street Journal, Mashable, US News & Education and The Huffington Post. The opinions expressed in this article are Jodi’s and do not necessarily reflect the opinions of Discover® Student Loans.
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