High School Series Part 3 – Evaluating Financial Aid Packages

December 31, 2013

Once you’ve completed your college applications, submitted your FAFSA and applied for grants and scholarships in the coming weeks (if you haven’t done so already) you’ll begin to receive acceptance letters and financial aid package offers from colleges. These can be complex and should be evaluated on a per college basis and then comparatively to see your best options for affordable schooling. 

Financial Aid by the Numbers

Because each financial aid letter will likely be quite different in format and language, you need to ensure you’re comparing apples to apples to make the best decision for your circumstances. We recommend setting up a spreadsheet to make it easier to compare without confusion – click here to download a ready to fill in/customizable Excel template (same format as the one used below).

Some letters will include only the cost of tuition and fees, while others may include all costs including tuition, fees, books, room and board. To verify that the college costs in the letter are correct, use the Chronicle of Higher Ed’s College Reality Check tool we recommended in Part 1 of this series. Some colleges may have poorly formatted letters and some may be trying to enhance the look of their financial aid offer by excluding some of the costs.

Certain types of financial aid will be the same no matter which school you choose – Pell Grant and any independent scholarships that you obtained by applying independently (i.e. not through a specific college). Some other aid will vary based on the school – FSEOG and tuition equalization grants at private schools, for instance.

Calculating Net Cost

Enter all aid listed by each school on your spreadsheet to come up with your net out of pocket cost. This should be total cost of tuition minus grants and scholarships. Do not include any financial aid offers that are listed as a loan or have the abbreviation “ln” beside them (this indicates it’s a loan). Also don’t include any work study offers in the net cost. You may not want to take this or may be able to get a better part time job off campus, so this isn’t real money you’re being offered.

Once you have the net cost, you know how much you’ll either have to pay in cash, borrow or work to contribute to pay for college. Your federal loan limit for your first year of school is $5,500 (unless you are completely independent of your parents), $6,500 for year two and $7,500 for years three and beyond. But just because you can borrow that much doesn’t mean you should. As a matter of fact, if possible, you should borrow sparsely or not at all.

The Consequences of Borrowing

If your family can’t afford to chip in for school (or they can’t chip in enough) and you max out your federal student loan limits, you’ll graduate with $22,200 if you stick to $5,500 per year. If you ride out the maximum for each year, you’ll owe $27,000. On average, graduates are $29,400 in debt when they graduate because they also take out private loans or take longer than four years to matriculate. Here’s what this means:

$22,000 equals $233 per month in student loan payments, $6,000 in interest

$27,000 equals $285 per month in student loan payments, $7,365 in interest

$29,400 equals $312 per month in student loan payments, $8,020 in interest

Some students turn to private student loans when federal loans can’t cover the cost of school, but interest rates are higher, there are no loan forgiveness options and once you graduate or leave school, there are no income sensitive payment plans to protect you if you aren’t earning a living wage. The bottom line is that you should do everything you can to avoid borrowing for school.

Tomorrow we’ll talk about making your college choice with an eye on cost/benefit and a long-term view of your financial future. For now, we invite you to sign up with Tuition.io so you can receive blog updates and if you do have to borrow, you’ll already be in our system and ready to use our free student loan tool to keep track of your debt so you don’t have any sticker shock over how much you owe by the time you graduate college.

Read all of our blog series for High School students:

High School Series Part 1 – Understanding College Costs

High School Series Part 2 – Applying for Financial Aid and Scholarships

High School Series Part 3 – Evaluating Financial Aid Packages

High School Series Part 4 – Making Your College Choice

High School Series Part 5 – Strategies to Minimize Borrowing

High School Series Part 6 – Understanding Debt: Federal vs Private Student Loans