How To Compare Financial Aid Award Letters: What To Look For

When preparing to head off to college, cost is a factor that's top of everyone's mind. The average cost of tuition and fees was $11,610 for full-time undergraduate students at public four-year colleges (in state) for the 2024-2025 school year, according to the College Board. The average was $43,350 at private nonprofit schools.

While the cost of higher education can be staggering, there are various types of aid available to help offset it. When you apply for schools and start receiving your acceptance letters, you'll also receive financial aid award letters, which can help you narrow down your choices by cost and, ultimately, choose a school.

In this article, we'll discuss how to compare financial aid award letters and how to use the information in them to choose a school.

Understanding financial aid award letters

A financial aid award letter is a document you'll receive from any school you've been accepted to. It outlines your cost of attendance, as well as any aid you're eligible for. You'll receive a financial aid award letter as long as you've completed the Free Application for Federal Student Aid (FAFSA).

Receiving your financial aid award letters is an important step in choosing a college. It helps you compare various aid offers, as well as your out-of-pocket costs for the schools you're considering. Depending on your financial situation, these aid letters could even be the make-or-break factor that ultimately determines where you'll go to school.

Each letter should include your estimated cost of attendance, as well as any aid you qualify for, which could include grants, scholarships, student loans, and work-study.

How to calculate net cost vs. total cost

Your total cost of attendance includes all education expenses, including tuition, fees, room and board, textbooks and supplies, and more. Your net price, on the other hand, is the amount you're responsible for. Some financial aid award letters may calculate and list your net cost, while others will only list the total cost of attendance.

To calculate your out-of-pocket cost (aka net cost), take your total cost and subtract gift aid, such as grants or scholarships. You won't subtract work-study or loans to calculate your net cost since you're technically still responsible for that portion of your costs.

For example, suppose your total cost of attendance for the year is $25,000, and you've been awarded $7,500 in grants and scholarships. You'll subtract your gift aid from your total cost of attendance ($25,000 - $7,500) to find that your net cost is $17,500.

Types of financial aid in award letters

There are three primary types of financial aid you might find in your award letters: gift aid, self-help aid, and loans.

Gift aid

Gift aid refers to any financial aid you won't have to repay, and includes both grants and scholarships. The federal government offers several grants, with the most common being the Pell Grant, which is offered to students with exceptional financial need. Your university or private organizations may also offer grants.

Similarly, scholarships are a form of gift aid, often awarded by universities — the federal government doesn't offer any scholarships. While grants are often need-based, scholarships are sometimes merit-based, meaning they may be based on some sort of academic or athletic achievement.

Many private and nonprofit organizations also offer scholarships, but be aware they could ultimately reduce the aid you receive from your school.

“Recipients should be aware that outside scholarships may be used to offset collegiate aid,” says Howard Freedman, the owner of Financial Aid Consulting and a former member of the Massachusetts Association of Student Financial Aid Administrators (MASFAA). “Families should discuss each school's policy to ensure that outside assistance may not reduce college scholarships or grants but rather reduce the loan amount borrowed.”

In many cases, outside scholarships will first replace any student loans or work-study aid you've been offered, but it's worth contacting your school's financial aid office for confirmation.

Self-help aid

Self-help aid refers to the federal work-study program, which allows students to work part-time to earn money that can help pay for school. Work-study positions can be on- or off-campus jobs, and the program encourages jobs related to your field of study.

“This is money earmarked for you, but you don't get it automatically,” says Bethany Hubert, a financial aid specialist at Going Merry by Earnest.

You'll have to apply for and get a job to earn your work-study money, and a job is not guaranteed. However, there's no real downside to accepting your work-study offer, even if you don't ultimately end up using it.

Loans

The final type of financial aid is student loans, which can cover any of your attendance costs that aren't covered by gift aid or work-study. Most students are eligible for federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, and graduate PLUS loans (for grad students). However, Direct Subsidized Loans are based on a student's financial need. If you've maxed out your eligibility for these loans and you're a dependent undergraduate, you can also turn to parent PLUS loans. Your parents take these out rather than you, and the loan limit is the certified cost of attendance, minus other gift aid.

If the federal loans you're offered aren't sufficient to cover your entire out-of-pocket cost, and you don't have other savings available, you may need to consider private student loans. Keep in mind that private loans have some key disadvantages.

For example, your eligibility is based only on your credit and your ability to repay the loan, and you may end up with a higher interest rate (if you're able to qualify at all). Additionally, some private loans require repayment while you're in school, while federal loans allow you to defer payments until after you leave school. Most private student loans allow you to add a cosigner, like a parent, to your loan to help you qualify for better loan terms. Just keep in mind that your cosigner must repay the loan if you fail to make payments.

Factors to consider when comparing financial aid award letters

When you're comparing multiple financial aid offers, it's important to take a holistic look at all factors, including the total cost of attendance, the value of the aid being offered, and the terms of that aid.

Overall gift aid

First, you'll want to look at the amount of gift aid you've been offered by each school. In addition to looking at the value of the aid, look at other terms, such as whether the scholarships and grants are renewable, meaning you can receive them each year. If you're considering taking out loans, make sure to also consider the rates and repayment terms for each loan. For federal loans, these will be the same no matter what school you're attending.

That being said, remember that the aid amount doesn't tell the whole story. If one school is significantly more expensive, a slightly larger aid amount may not help offset that extra cost much. On the other hand, one school might be more expensive on paper but may, in fact, offer enough gift aid to make up for it. For that reason, it's important to calculate the net cost rather than just the cost of attendance or just the aid amount.

Hidden costs

Finally, consider any hidden costs that won't show up on your financial aid award letter and that aren't covered by financial aid.

“Let's say you get two offers with financial aid options that make your direct costs to the university (tuition, room and board, and fees) exactly the same,” says Hubert. “But maybe the first university is in Seattle, and you live in Tampa.”

“That means you'll have to spend more money on traveling and moving each year if you plan to visit home during the holidays. And if you're flying to school, you'll also likely have to purchase more living essentials in your new city, like dishes, bedding, and room decor, rather than packing what you already have from home that fits in the trunk of a car. These things add up quickly.”

Tips for choosing the best financial aid package

If you're struggling to choose the best financial aid package from those you've been offered, here are a few tips to help you make your decision:

• Prioritize free aid: First and foremost, prioritize grants and scholarships over work-study and student loans. You don't have to repay gift aid — it's entirely free — meaning it's the best way to reduce your out-of-pocket education costs.
• Thoroughly review each aid letter: When choosing a school, make sure to thoroughly review each aid letter and understand the terms of the aid you've been offered.
• Compare your all-in costs: Don't just look at the total aid offer from each school. Run the numbers to subtract your gift aid from your cost of attendance to determine your net cost. This is the best way to make an apples-to-apples comparison across schools.
• Consider short-term and long-term costs: Don't just consider the immediate cost of attendance at each school. Student loans have long-term costs as well, including a decade or more of interest and monthly payments. Consider those long-term costs, too.
• Negotiate your aid package: Aid offers aren't necessarily final. You can choose to accept or decline any aid and may even be able to appeal to your school's financial aid office for increased aid. The worst they can say is no. You're most likely to be successful if your family's financial situation has changed since you completed the FAFSA.