Most students plan on using financial aid to help them pay for school. The 2021 College Hopes and Worries Survey Report found that 98% of parents and students state they'll need some form of financial aid to pay for college1

Additionally, most students who plan on attending college apply to several schools to determine which one will best fit their needs. 

According to one study, students apply to an average of 5.8 colleges, with most students applying to three, four, five, or six schools2. That means that most students are trying to compare financial aid letters from three to six schools. 

Unfortunately, students and their parents find these letters confusing.

Although the financial aid letter is supposed to help parents understand the cost of attendance, parents say they have trouble comparing letters for a number of reasons.

  • Each letter presents the information differently
  • Terms are unfamiliar
  • Some schools only provide tuition pricing with no cost of living pricing
  • Aid is given in a lump sum instead of broken down by category (Federal loan, work-study, scholarship, etc)

Confusing financial aid letters cause problems for prospective students and their families. 

Either the letter leads them to believe they cannot afford your school, so they go elsewhere, or they choose your school without understanding the true costs. When this happens, students often drop out. 

Read more: The 5 Financial Aid Myths Students Believe

Neither outcome is beneficial to students or the institutions they want to attend.

Here are five things you can do to improve your financial aid letters.

#1: Simplify or Explain the Terminology

A study of adult learners found that one-third of those surveyed did not understand an average of four terms per financial aid award letter3. To make matters worse, a New America study that examined award letters found that letters that mentioned federal direct unsubsidized loans used 136 unique terms – some of these didn’t even use the word loan4.

Most prospective college students are already confused about finances. You don't want your financial aid letter to make matters worse.

To make award letters less confusing, colleges and universities should avoid using abbreviations, eliminate jargon, and define all financial aid terms. 

#2: Provide a List of Types of Aid Awarded

The same New America study found that seven out of ten award letters grouped all types of aid together. These letters also did not explain how different student aid worked.

Lumping together grants, scholarships, loans, and work-study doesn’t allow students and parents to:

  • Know how much of each type of aid the student will receive
  • Determine how much aid is in the form of a loan
  • Let parents determine the expense of certain financial aid and the risks involved
  • Understand the true affordability of the college

To combat this problem, award letters should break down financial aid into categories, define the different programs, and explain when each is awarded and how (or if) it needs to be paid back.

#3: List Complete Cost of Attendance

The only way for students and their families to adequately compare award letters is to know both the amount of aid being awarded and the cost of attendance at any given college.

Unfortunately, New America found that one-third of award letters did not include any cost information at all. Of those that did include cost information, many did not include all of the costs associated with attendance.

A strong financial aid letter should include:

  • Tuition
  • Housing
  • Meals
  • Fees
  • Books
  • Transportation
  • Personal expenses

Additionally, it will help students and their families to know what costs are firm and what costs may depend on individual situations.

For example, tuition and on-campus housing are fixed costs. On the other hand, personal expenses and transportation can vary.

Providing an award letter with listed fixed costs as well as estimated indirect costs makes financial aid award letters easier to comprehend.

#4: Stop Calling Direct PLUS Loans Financial Aid

Direct PLUS Loans help parents pay for tuition that financial aid does not cover.

These loans are in the parents’ name, are unsubsidized and thus have a higher interest rate, are subject to a loan fee of over 4%5, are dependent on a parent’s credit, and begin accruing interest immediately upon disbursement of loan funds even if a family qualifies for deferment. 

Despite not being guaranteed financial aid, fifteen percent of award letters analyzed by New America included PLUS loans as an award. This makes the financial aid package appear better than it really is.

If a college chooses to include PLUS loans as part of their award letter, they should:

  • Separate the PLUS Loan as an additional option for parents to cover any award gaps
  • Explain the PLUS Loan and how it works

#5: Offer Clear Next Steps

Finally, a financial award letter should help students know what to do next.

How can a student accept an award? How do they decline it? What do they need to do to accept some financial aid? How can they accept a loan of a lesser amount? How do they find scholarships to apply for?

Make sure your school’s policy for accepting and declining awards is fully explained. You should also provide contact information to the financial aid office to get help and answers, as well as where to find information online.

iGrad offers help to colleges and universities in creating financial aid letters that are useful to students and their families. They also offer students an award letter analyzer to help them compare different awards.

To see how iGrad can help your college or university, here are some examples of how 24 different colleges are using financial literacy to help both their students and their school.


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