In the two weeks leading up to the universal Candidates’ Reply Date of May 1st, the deadline for all high school seniors who have filed college applications to submit their deposit to the one college of their choice, families are scrambling to compare financial aid awards.

Invariably, financial aid letters can be confusing and difficult to interpret. Here is a list of potential pitfalls to be aware of when evaluating your offers in order to determine affordability.

1.   Double-check to determine whether the cost of attendance quoted by the college includes indirect, or only direct, costs. Direct costs are tuition, room and board, and student fees. But indirect costs can also add up, including: books, transportation, and personal expenses. Make sure to keep these in mind also when you come up with a final “out of pocket” calculation for each college or university. If the financial aid award only covers direct costs, the family will need to have a plan for covering the indirect costs.

2.   Distinguish between gift aid (which you don’t have to repay) vs. loans. Often, financial aid letters make it appear that a family’s total need has been covered by the financial aid award; however, be aware that often, a large part of this is loans rather than gift aid.  In other words, the college has covered the total amount of the family’s demonstrated need with the award, but it is in the form of loans and will eventually have to be repaid. Gift aid includes scholarships and grants. Most financial aid offers also include loans (including the Parent Plus Loan) and work-study. It is critical to determine how much of the award falls in each category.

3.   Determine whether federal loans (like the Stafford) are subsidized or unsubsidized. If subsidized, the principal will not begin to bear interest until after the student graduates. If the loan is unsubsidized, it begins to bear interest immediately. It is critical to understand this factor, as well as what the percentage rate of interest on the loan will be.

4.   Keep in mind that most financial aid offers are good for one year at a time. Families have to reapply every year. If a student is awarded scholarships, which don’t need to be repaid, it is important to determine whether the scholarship is good only for the first year or for four years, as well as any gpa or housing requirements that are necessary to retain the scholarship.

5.  If a student wins any local, private scholarships, be advised that these are often used to reduce the amount of need of the family. Thus, these amounts are deducted from the amount of financial aid awarded, rather than deducted from the family’s contribution. In the best cases, colleges reduce the amount of loans by this figure, rather than the amount of gift aid. However, often, it is the reverse.

6.   Finally, probably the most significant figure for a family to compute is the total amount that each college will cost a family per year, including not only the expected family contribution (demonstrated need) but also adding the total amount of the loans. This is the true cost to the family. Leaving the loans out of this computation gives a false picture.

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