College Decision Time: How to Compare Financial Aid Offers and Pick the Right School

Navigating the complex world of college admissions is hard enough, but figuring out how you’ll pay for it all can be an absolute nightmare.

Not only must you sort through an array of financial aid details, but you have to figure out what that aid is actually worth, how much of it you’ll eventually need to pay back, and how all of those details tie back to the final price tag of your college degree.

Worse, every school is different, meaning there is no “standard” for how financial aid packages work or look. From each college and for each individual, financial aid packages are highly variable, with the inclusion and exclusion of certain components based on the student’s academic status, degree program, and family income.

Sadly, colleges and universities don’t necessarily go out of their way to make this process any easier.

TEDx speaker and documentary film maker Adam Carroll highlights the common tragedies that befall far too many college students seeking aid in his new film, “Broke, Busted, and Disgusted.” According to Carroll, the biggest blunder college students make when figuring out how to pay for school is blindly accepting their college financial aid package without actually understanding what’s in it.

The term “financial aid” suggests that there is help on the way, notes Carroll. Unfortunately, some components of an aid package can easily be loans disguised as help.

“To the uninitiated, it looks like the school is being very generous with the money it’s handing out,” says Carroll. “In reality, they are having a student – and usually parent – sign on the dotted line to receive funding for school… These are loans that have to be paid back.”

The point of this article is to help you cut through the hype. By drawing on Carroll’s experience and the lessons he espouses in his documentary, we hope to unravel the mystery that is financial aid and help students save money in the process.

Let’s start at the beginning.

Different Types of Financial Aid

Before we dig into the details, it’s important to define the different types of financial aid that are available, as well as how they work in a general sense. Some financial aid, such as scholarships and grants, doesn’t need to be paid back. But loans – either federal or private – will need to be paid back upon graduation.

As Carroll says, that’s one reason the term “financial aid” is so deceiving. Some financial aid is truly a gift, while the rest will need to be paid back over years, or even decades.

Here are the basic types of financial aid your own package might include:

Scholarships and Grants

Unlike loans, scholarships and grants are essentially free money and do not need to be paid back.  As Carroll notes, however, students who want scholarship money need to put in the work to apply.

“Applying for scholarships should be treated like a part-time job while in high school and college,” says Carroll. “This is the single highest paying part-time job a young person can have, bar none. There is no job available for a person that age that could yield anywhere from $50-$1,000 per hour worked on the application.”

Grants often come from private institutions, but the federal government also offers several different types:

  • Federal Supplemental Educational Opportunity Grants (FSEOG): These grants were created for undergraduate students with exceptional financial need.
  • Iraq and Afghanistan Service Grants: This type of grant provides money to students whose parent or guardian died serving the United States military in Iraq or Afghanistan.
  • Pell Grants: These grants are generally awarded to undergraduate students and based on financial need, the cost of attendance at your school, and other factors.
  • Teacher Education Assistance for College and Higher Education Grants (TEACH): These grants are available for teachers who commit to working in a high-need discipline in a low-income area for a specific length of time.

State-Based Aid

Many state governments offer grants, scholarships, state-funded loans, tuition assistance, and even work-study programs for their residents. Your state’s financial aid agency is generally the first point of contact for this type of aid, although you can also ask your school’s financial aid department.

State-based aid can be awarded based on a wide range of factors including academic performance, affiliation with a religious organization, and race or ethnicity, among other considerations.

Federal Student Loans

While federal student loans can be either subsidized or unsubsidized and come in all shapes and sizes, the way they function is mostly the same across the board.

For starters, students don’t need a cosigner or a credit check to apply for federal student loans. Second, most federal student loans come with special government protections and options such as deferment, forbearance, income-driven repayment plans, and loan forgiveness programs.

Types of federal student loans include:

  • Direct Unsubsidized Loans: These loans are for undergraduate and graduate students who haven’t demonstrated a financial need. Borrowers are responsible for paying interest on their loans during all periods.
  • Direct Subsidized Loans: These loans were created for undergraduate students who can demonstrate a financial need. The U.S. Department of Education pays the interest on your loans while you’re still in school.
  • Direct PLUS Loans: These federal loans are available for graduate or professional degree students and parents of dependent undergraduate students.
  • Federal Perkins Loans: Federal Perkins Loans are low-interest loans for undergraduate and graduate students who have demonstrated an exceptional financial need. The school serves as the lender with this type of loan. However, not all schools participate.

When it comes to borrowing money for college, federal loans are generally considered the most attractive since they offer the lowest fixed interest rates available and make it possible for students to qualify for income-based repayment and loan forgiveness plans after graduation.

And if you qualify for subsidized loans, which include interest payments from the federal government, choosing this option first is an absolute no-brainer.

Private Student Loans

Private student loans are the go-to option for students who have exhausted, or plan to exhaust, the federal student loan limits available to them. These loans generally come with higher interest rates, and do not help you qualify for government income-based repayment plans, loan forgiveness, deferment, or forbearance.

Since private student loans are offered by private lenders, borrowers will need an established credit history to qualify. Since many college students haven’t yet established a solid credit history, parents commonly cosign for these loans.

How to Decipher Your Financial Aid Package

One of the first steps you took as you applied for college was hopefully filling out the FAFSA, or Free Application for Federal Student Aid. Once filled in accurately, this somewhat daunting pamphlet provides states, federal agencies, and schools with the information they need to assess how much your family can be expected to contribute toward your education.

And if you were considering a private school, you may have also filled out a CSS Financial Aid Profile, a form that provides much of the same information for the exact same purpose.

Your financial aid package is meant to fill in the gap between your family’s expected contribution and what you actually owe. However, since financial aid packages commonly include student loans, this total can be deceiving. Here are some steps you should take as you evaluate your complete financial aid package:

Step 1: Read through all the details, line by line.

In order to decipher the myriad details involved in any financial aid package you receive, the first thing you’ll want to do is break it up line by line.

Figure out which components of your financial aid package are true scholarships or grants, and which parts are comprised of loans. Only then will you see a full picture of the “price tag” for your college education at a given school.

Next comes the tricky part — comparing financial aid offers from two or more different colleges. Every financial aid package is different, and each school approaches the process in an entirely different way, so it’s a very personal decision that will depend on a variety of factors. However, here are two ways you can begin to quantify competing offers:

Compare the total amount of money offered: Let’s say School A offers you a $1,000 scholarship and $4,000 a year in grants, while School B offers you $10,000 a year in combined grants and scholarships. School B wins out because it’s offering you more free money.

Compare the total costs: However, School A only costs $10,000 a year in tuition, while School B, a private university, charges $30,000 a year. That means it will only cost you $5,000 a year to attend School A, versus $20,000 a year at School B. Now School A looks like the better option.

As you can see, the trouble is that there’s not really a “right” answer here. There are many more variables that make this a distinctly personal decision, such as a school’s proximity to home, the strength of the program you want to enroll in, and whether any loans you take out to plug the cost gap are federal or private — and that’s just the beginning.

One other important factor to consider is how this could all change from year to year. Students must fill out a FAFSA every year, since most federal aid is awarded one year at a time. So while you may receive X dollars in scholarships or aid your first year, various factors could influence that amount next year or the year after, driving up – down – the cost of attending school for a full four years.

Let’s say a scholarship you receive is for one year only. While that helps with the bottom line this year, you have to weigh the fact that that help may not be around 12 months from now.

Fluctuations in your family’s financial situation can also impact the bottom line. If you or your parents earn considerably more money next year, you might see a serious uptick in your family’s expected contribution that results in less overall aid. Meanwhile, a layoff or other financial hardship down the road could result in a more generous aid package that year.

You can’t always predict these changes, but you should be aware that the cost of college may not be the same from one year to the next. Try to consider what your full four years of college might look like before you sign on the dotted line.

Step 2: Make sure your expected family contribution makes sense compared to your income.

If you filled out your FAFSA form correctly, the result should culminate in a fair amount of aid offered. However, the complex nature of the FAFSA means it’s easy to make mistakes that could cost you thousands of dollars. If something doesn’t seem right, make sure to ask questions.

“Make sure you find someone that can answer your questions in as much detail as you need to feel comfortable,” says Carroll. “Assuming that the college or university has your child’s financial future in mind is not the answer.”

Step 3: Beware the cosigner.

If private student loans are part of your package, you’ll want to weigh the pros and cons of having a parent cosign before you sign on the dotted line. Sadly, this has been a grave mistake for many parents. When you’re a cosigner and your child doesn’t pay, the responsibility falls back on you, says Carroll.

“Keep in mind that the average payback period for student loans is around 21 years. If you’re willing to bet on your child being incredibly responsible for the next couple of decades, sign away.”

Step 4: Prepare to appeal.

If your heart is set on attending a specific college but the out-of-pocket cost is simply too much to bear, reach out to the schools’ financial aid office directly and appeal for help.

While this strategy isn’t always successful, there are times when a school can reevaluate your case or look for additional funding or grants that could lighten your load. At the end of the day, the worst they can say is no, so it never hurts to ask.

According to figures from the College Board, tuition costs have increased about 30% in the past 10 years. The average annual tuition at a public, four-year school was $9,410 for the 2015-16 school year, and $34,405 at private, four-year universities.

Those are big numbers, so it’s important to understand how this money will be paid – and how much of it you’ll actually have to pay back. The financial aid package you receive will depend on a whole range of factors – your family’s income, for starters, plus where you live, how much funding your school has available, and how many scholarships and grants you received on your own.

Whether you’re a parent or a student, it’s your responsibility to evaluate the fairness of what you’re actually being asked to pay for school. And if you don’t like what you see, or the future implications of borrowing huge sums of money, it might make sense to consider all of your options – including a stint in community college, a two-year program, or even skipping college altogether for trade school.

College: Making the Final Decision

While a four-year degree was once considered the only way to get ahead in life, the surging costs of higher education have forced many parents and future college students to think again. Not only is the return on investment of a four-year degree waning in some instances, but there are plenty of high-quality careers that require only a two-year degree or technical education to get started.

If you’re sending your child to college so they’ll be financially successful in life, you should know that economic realities have changed dramatically since you went to school, says Carroll.

“You wouldn’t tell your child to go buy a $100,000 vehicle to drive if all they want to do is drive for Uber,” he says. So why push them toward a four-year degree if their skill set matches better with a technical education?

“There are more jobs today than ever that don’t require a four-year degree to apply,” says Carroll. “In fact, many community college graduates are being recruited prior to graduation to go work in STEM fields like telephony, laser technology, and welding. These are jobs that pay close to $50,000 a year in many cases.”

And you don’t have to pursue a four-year degree from the outset, either – even if that’s your eventual goal. Starting off at a community college — or even just knocking out some core courses there — and then transferring to a four-year school can save you thousands of dollars.

High school students should be participating in a community college credits program whenever possible, says Carroll. Many high schools today partner with local community colleges that allow students to earn free or discounted college credits while still in high school, and these programs can save your student both money and time.

“For a very driven student, they could leave their high school with a full year of college credits under their belt, saving tens of thousands in tuition and future loan costs,” says Carroll.

The Bottom Line

Trying to decipher a complex financial aid package can make you question everything, and maybe it should. When a college education costs so much money that even educated parents can barely make sense of their child’s financial aid package, that’s not a great sign.

Still, the numbers prove that a college degree is still a good investment overall. Where those with just a high school diploma earned an average of $688 per week in 2014, those with a two-year degree made $792, and graduates with a bachelor’s degree brought in $1,101.

That adds up: College graduates earn $830,000 more in their lifetime than those with just a high school diploma. Further, those with higher education under their belts enjoyed a much lower rates of unemployment, along with better job prospects over all.

When the difference in long-term wages is so significant, climbing through piles of college scholarship applications and financial aid data seems like a smarter move than ignoring it altogether. Still, it’s important to know exactly what you’re getting into. With at least 10 years to repay your loans ahead of you, every dollar counts.

Adam Carroll is the author of Winning The Money Game, 30 Days to $1K, and the upcoming book The Money Savvy Student. His documentary Broke, Busted & Disgusted is available for rental or purchase here. The site includes a conversation and dialogue guide for parents and students along with various resources to help students make an educated choice when choosing and paying for school. 

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Holly Johnson

Contributing Writer

Holly Johnson is a frugality expert and award-winning writer who is obsessed with personal finance and getting the most out of life. A lifelong resident of Indiana, she enjoys gardening, reading, and traveling the world with her husband and two children. In addition to The Simple Dollar, Holly writes for well-known publications such as U.S. News & World Report Travel, PolicyGenius, Travel Pulse, and Frugal Travel Guy. Holly also owns Club Thrifty.