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Health & Fitness

Analyzing the financial aid award letter...

Appearances can be deceiving. This is especially true when it comes to financial aid.  Now that April has arrived, most college-bound seniors should expect to receive letters from their prospective colleges detailing the financial aid packages that have been awarded to them. Ideally, a financial aid package is intended to cover the difference between what your family is able to pay for college (“Estimated Family Contribution” or “EFC”) and what it actually costs to attend a particular school (“Cost of Attendance” or “COA”). While a number of colleges are able to offer financial aid packages that cover most or all of this differential, institutions differ substantially in how they fill the cost gap.  No two financial aid packages are the same, which is why you must look beyond the bottom line or total dollar amount listed in your award letter, and analyze what it is that each school has really given to you.

A college awarding you the most money hasn't necessarily awarded you the best financial aid package. For example, a large award from school A, consisting primarily of loans, may not be nearly as attractive as a smaller award from school B that is loaded with grants and/or scholarships. When reviewing your award letters it’s important to determine what percentage of your award consists of gift aid (award money that doesn’t have to be paid back), whether or not such aid is renewable (for each year that you are in college), and upon what conditions, if any, your gift aid is based (i.e., maintaining a certain GPA, registering for a certain number of credits, etc).

After analyzing the types of financial aid that you have been offered, you may conclude that you need to accept at least some award money that must eventually be paid back. This, however, is not a bad thing, given the returns to higher education. So, if you have to accept loans to finance your undergraduate education, go ahead and do so, but do so wisely.

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In addition to prudently determining the amount of money you should borrow, you also need to heed what you borrow, as all student loans are NOT created equal.  As a general rule, think federal loans first, and as much as possible, try to avoid private loans.  Why?  Federal loans offer student borrowers a host of benefits not typically found in private loans, including a low and fixed interest rate, flexible repayment plans, deferment options, and in some cases, loan forgiveness.   Private loans, on the other hand, generally have much higher, variable interest rates and do not offer students nearly the same flexibility during repayment. Private loans have also significantly harmed the professional development and financial well-being of many students. Every year, thousands of college grads are forced to pass on a new apartment, car, or career (a sizable monthly loan payment can preclude one from pursuing an important internship or service-oriented job) because they are saddled with a high-interest and high-dollar private loan.

Graduating from college and transitioning into the real world is hard enough without having to tackle a mountain of debt. Academic achievement and financial solvency are equally essential to the successful start of your adult life, so review your award letters carefully, and choose a school and aid package that will give you not only the skills but the financial freedom to reach your personal and professional goals.

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College Transitions is a team of college planning experts committed to guiding families through the college admissions process. As counselors and published higher education researchers, we aim to bring perspective (and some sanity) to college planning, and we strive to provide students with the support they need to enroll and succeed at a college that is right for them. Please visit our website—www.collegetransitions.com—to learn more.

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