How to compare college financial aid offers

According to the latest Strada-Gallup Education Consumer Survey, 22 percent of students decide which college to attend based on affordability and financial aid offers are a factor in their college search. Student loan programs can vary significantly from school to school and are awarded based on a variety of factors, including a student’s academic progress, extracurricular activities, degree programs and family income.

Financial aid includes scholarships, grants and student loans, and each has its eligibility requirements and implications. As a result, comparing offers can feel like comparing apples to oranges. To make the best choice, it helps to have a good understanding of the scope and requirements of grants and loans.

Applying for financial aid and comparing loans

Financial aid packages can change from year to year. Students fill out the Free Application for Financial Student Aid (FAFSA) annually, and it’s awarded one year at a time, based on need. If your family situation changes or you declare yourself an independent student who doesn’t receive money from parents, you may qualify for more or less in subsequent years. While you can't always predict the future, it's essential to consider what could happen.

Evaluate financial aid packages by comparing the total amount of money offered to the total cost of attendance. Be sure to look at the amount of assistance that consists of student loans. While some loans can be forgivable depending on your field or circumstances, most must be repaid in the future.

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Federal loans offer the lowest fixed interest rates available. If you qualify for direct subsidized loans, you won't be charged interest until after graduation. If you choose direct unsubsidized loans, however, you'll accrue interest while you're in school. Loans make college seem more affordable at the start, but they impact your actual bottom line.

Also, be sure to read the fine print on any college scholarships or grants you’re awarded. Some are for your first year only, which can impact the total cost of earning a degree. Others may have requirements, such as a maintaining certain grade point average. If you fail to meet the conditions you could lose the aid.

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Estimating your financial aid

To see which college provided you with the best package, determine the cost of attendance, which includes tuition as well as room and board, books, activity fees, travel fees, and any other related expenses. Then look at the dollar amount of the financial aid offer that is free, which includes college scholarships and grants. Subtract this from the cost of attendance, to compare the real price of your college choices.

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Cost of attendance – free aid = true cost

For example, College A is a private school that has an annual tuition of $35,000. It offers a financial aid package with $20,000 in free aid that includes grants and scholarships. College B is a public institution with an annual tuition of $10,000. It offers a $1,500 grant and $5,000 federal loan package. Even though College B offered much less financial aid, it’s more affordable based on its true cost.

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Evaluating offers can be complex, especially when you factor in expenses like room and board and fees. The Consumer Financial Protection Bureau offers an online calculator that can help you measure and compare the true cost of schools.

Other ways to pay for college

If the school you want to attend doesn't offer enough financial aid, it's possible to go back and negotiate the package, especially if you've had a change in circumstances, such as a parent who lost their job. Schools often have an appeal process that will trigger a reexamination of your case, and it could result in a more substantial offer. An appeal may not be successful, but it never hurts to ask.

If that doesn’t work, there are other ways to pay for college. Private student loans, for example, are a popular option. They usually have higher interest rates than federal student loans, and generally require a parent to cosign, since they’re based on credit history and not need.

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You may also explore the Federal Work-Study program that provides a part-time job to students who demonstrate need, allowing them to pay for college by working. If this isn’t an option, students can get a job on their own, saving their paycheck for school. Or, another way to pay for college, is to reduce the total cost by attending a community college for the first two years. High school students should also look into programs that allow them to take for-credit community college classes as part of their high school curriculum.

Choosing the right college is a big decision. With college costs rising faster than the rate of inflation, financial aid offers should be an important part of the selection process. Over 70 percent of students obtain some level of financial aid. Make sure you understand the total cost of attendance—it’s a math lesson you can’t afford to miss.