Prepping for
Decision Day

Helpful tips to make the best college aid package choice

National Decision Day traditionally takes place on May 1 for first-year applicants to colleges and universities. Students typically must enroll by May 1.

If you are applying to college for Fall 2023, you should have received your college acceptance and award letters (student aid package) and any scholarships from the university itself. There may be other local or national scholarships that you are still waiting to hear from, and may not hear results from those until after May 1.

Reading and comparing financial award letters can sometimes be confusing. The letter will include the annual total Cost of Attendance and a list of financial aid options. Your financial aid package will likely be a mix of gift or grant aid (doesn’t need to be repaid), and loans (which you have to repay with interest).

Award letters have several elements in common

Expected family contribution. This portion of the award letter is the dollar amount that your family is expected to pay toward education expenses based on the financial information provided in the FAFSA. The number helps determine how much financial aid you may need to cover costs.

Cost of attendance. The estimated cost of attendance may include tuition, fees, room and board, books and supplies, transportation and other expenses for one year of classes. However, this does not mean you are required to pay all of these or that these are the exact costs you will incur. Books and supplies as well as transportation and other expenses are estimates and the amount you incur may be more or less.

Scholarship and grant options. This lists awards that do not require repayment and may include merit-based scholarships, need-based grants (institutional, state and Federal Pell), and other forms of “gift” aid.

Net costs. The cost of attendance minus total grants and scholarships. This is the cost per year that must be paid out of pocket or covered by loans or other aid.

Loan and work options. The bottom portion of your award letter will list available loan options—including the loan type, amount and interest rate. This section also indicates whether you qualify for federal work-study and, if so, how much you are eligible to earn each year and how many hours you can work each week.

In some cases, you may find that a more expensive school gives you more gift aid, reducing your net price. That’s why it’s so important to look at the price after subtracting gift aid so you can see how much you’d have to pay out of your own pocket.

When my children were going to college, I made a spreadsheet comparing the cost of tuition, room and board, subtracted off grant aid and known scholarships, to determine the out of pocket costs. Then added in the estimated cost of books, keeping it the same at each college, and added transportation costs, especially if considering an out of state school. This allowed us to compare the cost of each college side-by-side, which helped narrow down the decision.

Once the decision was narrowed down to one or two schools, we expanded the spreadsheet for all four years. Some colleges will lock-in the tuition rate for the four-years of school, which can be quite a savings. Check to see if the scholarships offered will be offered all four years, or if that will vary year-to-year. From there, deduct savings and 529 plan money available over the four year period.

This will show what the balance will be over the next four years that will need to come from loans, or other sources. I also factored in potential other scholarships, summer jobs to help pay for college, etc. It’s important to have a plan for how all four years of college will be paid for, and the maximum amount of loans you will consider incurring before making the final decision. Also discuss other options to reduce costs, such as applying to be a Resident Advisor or another campus job to assist in paying for college.

Gift Aid

Whenever possible, you want to use as much gift aid as you can before turning to other sources of financial aid. Gift aid doesn’t have to be repaid and comes in the form of grants or scholarships.

Grants can be issued by the government, schools and private organizations. Grants are typically based on financial need.

Scholarships are awarded by schools and private organizations. Scholarships are usually issued based on merit, such as your academic or athletic performance.

Federal Work-Study or other jobs during college

Will the student have a part-time job while attending college or is going to school going to be their full-time commitment. Different families have different views on this, so it’s important to have that family discussion and decide the maximum hours of work per week that is reasonable.

The federal work-study program can be a useful way to pay for a portion of your education expenses and to reduce how much you need to take out in student loans. The amount you can work is determined by your total federal work-study award. Not all schools participate in the federal work-study program, and it’s important to know that you’re not guaranteed a job. It’s your responsibility to find a suitable role. The award isn’t guaranteed, and you’ll have to work throughout the semester to earn the money you need.

Federal Student Loans

If you’ve exhausted gift aid and work-study and other resources, and still need money to pay for school, federal student loans should be considered. Federal loans tend to have lower interest rates and more flexible repayment terms than private loans. As an undergraduate student, you have the following loan options:

Direct subsidized loans. Undergraduate students with financial need can qualify for subsidized loans. With direct subsidized loans, the government covers the interest that accrues while you’re in school, during your grace period and during periods of deferment. As a first-year student, you can borrow up to $3,500 per year.

Direct unsubsidized loans. Undergraduate students can take out direct unsubsidized loans regardless of financial need. With these loans, you’re responsible for all interest that accrues. First-year dependent students can take out up to $ 5,500 (less the subsidized amount) per year, while independent students can take out up to $9,500 per year.

Parent PLUS Loans. PLUS loans allow parents of undergraduate students to borrow up to the total cost of attendance, minus other financial aid received.

If you qualify for subsidized student loans, it may be wise to use that money first and defer using savings (if available) for later, keeping in mind the balance that will be due when the student graduates.

There are also education tax credits which may assist in paying for college, but I will save that for another article.

If your financial circumstances have changed, contact the financial aid office at the college to appeal. The FAFSA used for your 2023 college application was based on your 2021 tax return. If your income has decreased, it is wise to contact the financial aid office to see if additional aid is available. For example, you could qualify for additional aid if your parents lost their jobs or experienced a loss in income, there was a major medical expense, or your home was damaged by a natural disaster.

It’s essential to research everything from tuition to transportation options before applying to a college. These are just the financial factors to consider. There are many other considerations you need to factor in, but first make sure it is financially feasible without graduating with a mountain of debt.

Once the decision is made, be sure to follow all the steps to accept the offer to the college of your choice, accept the financial aid package, only accept the loans that you decide you need, pay any necessary deposits, and decline the other outstanding offers.

Congratulations on making this next step in your career. If you need assistance in how to finance college or interpreting your financial award offer, see your financial advisor or a Certified Financial Planner (CFP).

Filed under: Dollars & Sense, Life, News
Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.