What’s Missing From This Financial Aid Letter?

Many financial aid letters  — heck almost all of them —  are confusing.

I’ve always wondered why award letters are so difficult to understand. Perhaps the staffers generating these letters in the bowels of universities have been conversing in financial-aid speak for so long that they have lost their ability to communicate in standard English.

Of course, the cynical explanation for unhelpful financial aid awards is that many schools don’t want families to know when an offer is pathetic. Obfuscation is an effective way to keep parents off balance.

This week I got the opportunity to listen to a great webinar on deciphering financial aid letters that was sponsored by the National College Advocacy Group.  The presenter was Paula Bishop, a CPA in Bellevue, WA, and a friend of mine, who has looked at hundreds of financial aid awards for her clients.

What Should Be in Every Financial Aid Award Letter

Here are the basic components that Bishop says should be in any financial aid letter:

• Full cost of attendance. This should be broken down into such expenses as tuition, room and board, textbooks, travel.
• Grant and scholarships. This money doesn’t have to be repaid.
• Types and amounts of loans. The loans should include the interest rates.
• Net amount student will have to pay after financial aid is deducted.
• Parent and student’s expected family contribution.

What was particularly helpful about the webinar is that Bishop shared examples of aid awards she has reviewed. I wanted to share one example today and tomorrow I’ll provide one or two more. Once you see actual award letters,  you will have a better shot at understanding what your aid letters mean.

George Washington University

Today’s award letter comes from George Washington University in Washington, DC, which is one of the most expensive schools in the country.

Take a good look. Does this appear to be a good award letter? Do you see anything missing from the award?

Oops. What’s Missing

At first glance, this might look like a generous award. It appears that the family will be getting $46,100, which sure seems like a windfall.  The letter, however, fails to include information that is necessary to know whether if this is a solid offer.

One whooper of an omission is GWU’s cost of attendance, which is a hefty $58,690. The letter also doesn’t include what the family’s Expected Family Contribution is. The EFC is what a family, at a minimum, will have to pay to attend a school. If you need it, here is an EFC backgrounder:

What Is Your Expected Family Contribution?

Paula explained that this family’s EFC is low — just $4,100. Ideally, the family would only have to pay $4,100 to attend any school. Realistically, however, most students will have to pay more than their EFC, but the closer to this figure the better. In this case, the family’s need was $54,590.

The GWU award also included an item that schools should not be inserting in their packages, but typically do — the federal unsubsidized Stafford Loan. Any student can qualify for the Stafford Loan (interest rate 6.8%) and it hardly should be used by aid packagers to reduce a family’s obligation. The subsidized Stafford and the Perkins are more attractive loans that middle and lower-income families can qualify for so it’s legit for those to be in the package.

Paula didn’t mention this, but what I find appalling is when schools, including GWU, don’t identify the Stafford as a L-O-A-N. How are parents supposed to know what a Stafford is otherwise??

Crunching the Numbers

When Paula removed the unsubsidized Stafford Loan from the package, the award dropped to $44,100. Remember, the student’s financial need is $54,590. Here is how she broke down the award:

GWU met 81% of this student’s financial need, but nearly a quarter of the package was in loans and a small work-study job. This is not a great award, but you need to compare it to what the students normally receive at GWU. For that you can head to the College Board and look at  GWU’s  financial aid statistics. Here is what I found:

According to GWU’s self-reported statistics, the school typically meets 94% of a student’s need. (See 6th line.) So the aid award that Paula’s client received would be lower than what many students attending GWU pocket.

As an aside, I wonder whether GWU really meets 94% of its typical student’s need.  If it did, then the students who borrowed for college wouldn’t be graduating with an average debt of $32,714. (See bottom line in the above illustration.) That indebtedness figure is well above the national average of roughly $23,000. In calculating that 94% figure, my guess is that GWU wrongly counts loans as meeting a child’s financial need.

What’s more, GWU’s peer institutions, such as NYU (69%), Fordham ( 78%), Emerson (70%), Drexel (61%), Northeastern (69%) –  all private universities in major East Coast cities – are typically meeting a far lower percentage of need for their students. Is GWU really going to be more generous than it’s competition?

These East Coast schools, by the way, can get away with lousy financial aid packages because there is such a big demand for students to attend schools in these cities.

I wrote a story about this phenomenon last year:

Attending Expensive East Coast Universities

Bottom Line:

You need to go through all the steps that I just outlined when analyzing a financial aid award to make sure you are getting what you think you are. Here is the next post on this topic:

Are These Financial Aid Letters Misleading?

Lynn O’Shaughnessy is the author of the second edition of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price. The second edition contains about 90% new content including chapters on evaluating schools financially and academically.