Choosing financial aid packages: Not all are created equal

moneyOnce you get your acceptance letters, your financial aid package will be an important factor in your final decision. In fact, this could even be the only deciding factor.

Along the way we’ve encouraged you to not let cost be the number one deciding factor when choosing colleges to apply to. This is because you won’t know exactly how much they will cost until you get acceptance letters and factor in outside scholarships. Now that you have that information, it’s the time to lay the money issue out on the table. It’s deciding time.

There are some essential things you need to know about the financial aid packages you receive. Your award will be a mixture of grant money, federal loans, personal loans (not recommended – they usually have high interest rates), work study, and the amount of money you are expected to pay out of pocket. What you might not know is if you choose the school that offers the most money, you might actually end up with more loans than you can handle.

The amount you’ll be expected to pay for tuition each year is called the Expected Family Contribution (EFC). You can either pay it out of pocket or take out a personal loan. You might think that the lower the EFC, the better the deal you’re getting. And that is probably what colleges want you to think. But what actually matters is the stuff in between the tuition and your EFC.

Let's look at an example:

College A College B

Total tuition: $10,000

Total tuition: $10,000

Pell grant: $3,000

Pell grant: $3,000

School grant: $2,000

School grant: $4,000

Loans: $4,000

Loans: $1,000

Expected family contribution: $1,000

Expected family contribution: $2,000


This is a very simplified example, but we're just trying to prove a point. At a glance, it seems like choosing College A would be the best choice. Why would you choose to pay an extra $1,000 for College B?

Take a look at the amount of grant money. Unlike loans, this is money you’ll never have to pay back. The amount you’ll get in the Pell grant won’t change, but each college can choose to award you its own grant. So if you receive this same package for four years, you’ll have $16,000 in loans to pay back when you graduate if you choose College A. If you choose College B, you’ll only have $4,000 to pay back!

If you lump loans and the expected family contribution (EFC) together, that will give you a better picture of what you’re paying each year. If you add loans and EFC for each college, you’ll actually be paying $5,000 for College A and only $3,000 for College B. Now College B looks like the better choice.

If you received outside scholarships that are sent directly to your school, they will be factored into the school’s grants. Generally, the more scholarships you received, the less you’ll have to pay in loans.

If you’re granted work study, consider that money as part of your EFC. The college doesn’t guarantee that you’ll earn this much money. It’s actually a limit for how much you can earn. And if you do get a work study job, they’ll pay you directly and you’ll be responsible for giving the money to the school.  You’ll also probably want to use at least some of this money for books or extra spending money instead of putting it all towards tuition.

If you think you won’t need loans because you’ll be able to pay that money every year, you do have the option of denying the loans. Be aware that if you do this, they’ll automatically take away your work study award.

Sometimes schools will offer you a big package for the first year to get you to come and then lower it over the next three years. Ask the school if the package will remain the same all four years, assuming your financial situation doesn’t change. Don’t be discouraged if you find that your school does this – a lot of schools do. You just need to be aware of it.

So take a closer look at how the money is divided up. It could save you a lot of money in the future.


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