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Understanding Financial Aid Award Letters

Throughout the end of March and/or early April, your student will receive financial aid award letters from all schools he or she was accepted to. This is an exciting (and confusing!) time in a student’s senior year, and he or she will likely seek your advice in understanding college finances.

Colleges determine the contents of a student’s financial aid award letter based on what he or she reports on the FAFSA. The purpose of each award letter is to outline the options available from the school and/or the government to students for financing their attendance and to identify the remaining gap, or the amount of money students must come up with on their own.

Award letters are notoriously confusing for students for two main reasons:

  1. Unfamiliar Terminology
  2. Lack of Standardization

Essential Financial Aid Terms:

      Let’s review the most important financial aid terminology you will find on all award letters.

    • Expected Family Contribution (EFC): A measurement of how much a student’s family can contribute to his or her education based on what they submit on the FAFSA, not how much they are required to contribute. Colleges use this data to determine financial aid awards.
    • Cost of Attendance: The total amount it will cost to attend college for one year, including both fixed expenses owed to the school (tuition, fees, room & board) and fluctuating expenses the student will need to cover separately (transportation, personal expenses, textbooks).
    • Gift Aid: Free money in the form of grants and/or scholarships.
      • Grants: Financial aid that does not need to be repaid, which is normally based on financial need. Grants can come from the federal government, from state governments, directly from the school, or all of the above!
      • Scholarships: Financial aid that does not need to be repaid, which is normally based on academic merit.
    • Loans: Financial aid that needs to be repaid after graduation.
      • Subsidized Loans: Loans that do not accrue interest until 6 months after a student graduates from college.
      • Unsubsidized Loans: Loans that do accrue interest while a student is still in college.
    • Work-Study: A federal program that allows students to work a part-time job on campus to earn money. The student will receive paychecks directly like any other job, and can choose whether to use the money for tuition or for personal expenses. A student must both accept work-study and actively seek out work-study jobs once on campus, so we do not include it when calculating net price/gap because it is not truly guaranteed.
  • Net Price/Gap: The amount a student is expected to pay after subtracting the total amount of gift aid awarded.

Sample Award Letter Walk-Through:

Unfortunately, colleges use a variety of formats for financial aid letters and this lack of consistency can be misleading for students (and us!). Here, we will review a sample award letter from UC Davis received by one of our former students. Though the format may differ from that of the letter(s) you are reviewing with your student, the process and terminology will be the same.




*Note that some colleges have a mandatory student contribution when calculating financial need (in this case, $3,500).



To calculate Net Price/Gap, we take COA – Gift Aid. In this case, $31,309 – $22,309 = $9,000.
To cover this gap of $9,000, this student may choose to take out the federal loans he or she was offered in the total of $5,500, leaving a remaining balance of $3,500 to be paid by saving over the summer, resources from family, private scholarships, etc.

Now that you understand the basics of an award letter, use our Financial Aid Comparison Worksheet to compare costs between schools.

Understanding Loans:

Federal loans are more often than not a necessary component of a student’s financial aid award. Taking out a reasonable amount in loans each year can be an excellent option for those who would otherwise have to work excessive hours while in school and experience financial stress, both of which ultimately affect academic performance.

However, understanding the right amount of loans to take is more difficult, and depends on each student’s financial circumstances.

  • If a student’s package includes loans, what are the interest rates? Assuming the student were to take out the same amount of loans each year, what would his or her total debt at graduation be? Currently, the average US student graduates with ~$30,000 in debt after college. According to a recent study completed by College Track, “college graduates with more than $30,000 in loans are 4x more likely to defer and twice as likely to default or be delinquent on their loans than those with less” (2017).

  • If a student has a large gap, he or she may be offered Direct Parent Plus loans by the government, a type of loan that parents must take out. These loans start accruing interest right away, and at a higher rate than other federal loan options. We recommend that students seek out other funding opportunities like private scholarships before resorting to Direct Parent Plus loans. If unable to secure other funds, students should minimize the amount they take out in Direct Parent Plus loans as much as possible.

    Other Questions for your Student:


    1. Does the award letter include the Cost of Attendance? What are the direct and indirect costs? Unfortunately, some colleges do not include this essential information, in which case students should search the school’s website.
    2. Is the housing status correct? If a student plans to live at home or off-campus, he or she should not be billed for the normal room & board rates.
    3. Are there any “next steps” items that you need to complete? Sometimes, colleges need additional information or documentation from students to confirm the award amount.