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3 tips to understand your financial aid award letter

Decode all that jargon to figure out how much money you're really being offered.

Anna Serio

Updated Feb 8, 2020

Financial aid award letters are supposed to explain what type of financial aid you’re set to receive from the school and federal government. But these letters can be hard to decode — filled with jargon and often missing key information. Familiarizing yourself with a few common terms can help you better understand your award letter and figure out which school is offering you the best deal.

1. Make sure you know all the key terms

Financial aid award letters tend to contain a lot of terms you might not understand if you don’t work in a financial aid office. Some common terms include:

College grants. Free funding that your school offers, usually based on financial need.
College scholarships. Free funding that your school offers, usually based on talent or academic merit.
Cost of attendance (COA). The total cost of attending the school for one academic year, including tuition, room and board, books and personal expenses.
Federal grants. Free funding offered by the federal government based on financial need, which you qualified for by filling out the FAFSA.
Federal student loans. Student loans offered by the Department of Education to supplement grants, scholarships and other aid.
Federal work-study. A federal program where students work in exchange for funds that go toward their cost of attendance.
Financial need. How much financial aid the school thinks you need to afford the cost of attendance. Not all schools offer enough aid to meet 100% of financial need.
Expected family contribution (EFC). How much a school thinks your family can pay out of pocket after financial aid, including federal and university loans. You can cover this with private student loans, scholarships and other outside aid.
Net price. Also known as net cost, this is how much you might have to pay for college after subtracting scholarships and grants. This does not include student loans.
Student contribution. How much the student is expected to pay for their education per academic year. Usually this is a few thousand dollars and can be covered with loans, a summer job or sometimes work-study.

2. Familiarize yourself with different types of financial aid

There are three main types of financial aid: Free aid, borrowed aid and earned aid.

Free aid

Also known as gift aid, free aid is money you don’t have to repay. This includes:

Grants are a type of need-based aid awarded based on financial need — you don’t need good grades or a special talent to get these. You can receive grants from the government as well as your school. They include:
- Federal Pell Grants. Funding for students with exceptional financial need based on their FAFSA application, up to $6,195 for the 2019–2020 academic year.
- Federal Supplemental Educational Opportunity Grants (FSEOGs). Funding between $100 and $4,000 for undergraduate students with exceptional financial need.
- Teacher Education Assistance for College and Higher Education (TEACH) Grants. Up to $4,000 in funding for students who plan to teach in low-income schools in a high-need field. This grant comes with work requirements — otherwise you have to pay it back.
- Iraq and Afghanistan Service Grants. Grants for children of US service members who were killed in Iraq, Afghanistan or 9/11 and don’t qualify for the Federal Pell Grant.
- University grants. Need-based financial aid offered by your school, usually to supplement federal grants.

Borrowed aid

Sometimes referred to as a self-help option, this is money you have to pay back — plus interest and fees. There are two main types of borrowed aid included in your financial aid award:

Loans offered by the federal government, which come with the same fixed interest rates and fees for each student. These are the loans you applied for when you filled out the FAFSA and are meant to supplement any other federal aid, such as grants or work-study.
Currently, the federal government only offers loans through the Direct Loan Program. These include:
- Direct Subsidized Loans. Loans for undergraduate students, where interest doesn’t add up until you start paying them back. This is the least expensive federal loan.
- Direct Unsubsidized Loans. Loans for undergraduate and graduate students, where interest starts adding up right away. Rates are slightly higher for graduate students.
- Direct PLUS Loans. Loans for graduate and professional students or parents, partially based on your credit score. These are best saved as a last resort, when you can’t qualify for enough subsidized or unsubsidized funding.

Earned aid

Earned aid is money you receive for your degree in exchange for working at your college or university. Sometimes it’s grouped in as a self-help option, along with student loans. It includes:

A program where undergraduate students work on or near campus. You usually have the choice of receiving your salary directly in your bank account or having it sent to the financial aid office to go toward tuition and fees.
Many schools only offer work-study through the Federal Work-Study Program — this is something you can qualify for by filling out the FAFSA. Some schools also have their own work-study programs to supplement the federal program.
The ins and outs of the Federal Work-Study Program

3. Compare the award to other offers

You won’t know how good of a deal you have until you compare financial aid award letters from different schools. If your dream school is offering you less funding than others, you can use those other award letters to negotiate more aid.

You can compare offers by using the Consumer Financial Protection Bureau’s (CFPB) financial aid comparison tool.

Here’s how to get started:

Choose up to three schools to compare.
Go to the CFPB website and click Get started.
Search for your first school by name. Select the type of program and how long it is.
Check I have a financial aid offer from this school. Click Continue.
Click Continue again to add your financial aid information.
Enter the breakdown of your cost of attendance or use the College Navigator tool to fill it out for you.
Click Money for school and enter how much funding you received in scholarships and grants, family contributions, federal loans and any private loans you intend to borrow.
Scroll back up and click Add another school. Repeat steps 3 through 7.
Scroll down to compare how much debt you’ll have after graduation and the monthly cost of your loans.

I didn’t get enough money. What can I do?

Even if your school meets 100% of financial need, there’s a chance your financial aid award isn’t enough to cover the full cost of attendance. If you need more funding, there are two steps you can take:

1. Negotiate with your school

First, talk to your school’s financial aid office and explain why your financial aid package isn’t enough. If you were offered more money from other schools, bring those award letters as proof. There’s a chance your school will ask for more information, reassess your package and give you more aid.

How to write a financial aid appeal letter

2. Apply for outside aid

If your school still doesn’t offer enough financial aid, you can apply for more money from outside organizations. Start with free aid before moving toward student loans. You might want to consider:

Private scholarships and grants. Many organizations offer free aid to students, usually based on financial need, demographics or academic interest.
Interest-free loans. Some organizations offer small student loans you have to pay back — but without interest or fees.
Private student loans. After you’ve exhausted all other options, private student loans can cover the rest of the cost of attendance.

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Bottom line

Financial aid award letters may be full of jargon. But once you’re familiar with the terms, they’re instrumental in making a decision about which school to attend. Using the CFPB’s financial aid comparison tool can help you easily find out how much debt each program will land you in.

You can learn more about how paying for school works by checking out our guide to student loans.

Frequently asked questions

Thank you for your feedback!

Anna Serio

Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 950 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.

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3 tips to understand your financial aid award letter