The Mysteries of the College Financial Aid Award Letter
By Joe Messinger, CFP®
May 7, 2015
If you have seen my college presentations, you know I start a lot of my talks with two questions…
1.How many of you are concerned about your child getting into their dream school?
2.If they get in, how many of you are concerned about how to pay for it?
The answers are always the same — 100% of you say yes!
If you’re a fan of “The Middle” TV show like we are, you may have seen this clip when Sue receives the letter about her college financial aid package. She wonders how can she survive college if she can’t even understand her letter? — a valid question.
Maybe the financial aid award letters need to come with a secret decoder ring à la A Christmas Story…“Be sure to drink your Ovaltine!”
We encourage families to wait until they have all of the financial aid award letters and compare the true “net cost” for each school. The letters come in all shapes and sizes and making a true apples to apples comparison can be difficult. Be sure to understand the difference between “Gift Aid”, grants and scholarships you do not pay back, versus “Self Help”, work study which your student works to earn and student loans that will need to be repaid.
The other zinger is the way many schools show the Parent Plus Loan as “financial aid”. In my mind, this practice is deceptive and misleading. Parents are allowed to borrow up to the full cost of attendance in the form of a federal Parent Plus Loan.
These loans are often approved within 48 to 72 hours. What if the application were to ask parents when they plan to retire? You may be able to repay the loan over time, but would you borrow if it meant you had to work an extra 5 years? Remember these loans are non-transferrable, mom and dad. If junior decides not to finish college you are still on the hook for repayment of the loan.
Here is a good tool to try and get an apples to apples comparison. And remember we are always here to help!
Know before you go! — Joe
Something else to consider: Need to learn more about student loans? Want to learn proactive ways you can manage the amount of loans you’ll need in the future? Take a moment to read our Student Loans – A Snapshot blog.
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