Comparing Financial Aid Offers

Updated on April 4, 2008.

THE GOOD NEWS: YOUR CHILD has been accepted to several colleges. The bad news? Now you have to figure out how to pay for it.

For most families, at least some of the college bills are covered by financial aid. But rarely are two schools' financial aid offers identical. That means parents have a lot to consider when helping their children pick a college.

By-the-numbers comparisons aren't easy. Financial aid officers will tell you that the amount of aid each family gets depends on many factors, including the family's previous year's income, its assets, its size, and whether it has other children in college. (For more details, see our story.) All these data are evaluated using complicated formulas to determine how much a family can afford to pay. A financial aid package is then developed to help foot the rest of the bill.

What might sound like a standardized process is anything but. The amount of aid almost always varies by school and by composition, split among loans and grants. The bottom line? What seems like the best offer might not be once you examine the numbers.

Ready to hit the books? Welcome to the advanced course of evaluating financial-aid packages.

Look Beyond the Summary Page
Most financial aid offers have a friendly looking summary section that lists the total cost of the school, the total amount of your financial-aid package and your family's contribution. Be warned: Focusing exclusively on this section could cost you thousands of dollars.

Instead, parents should dig deeper and take a close look at the different elements of the offer, says Kalman Chany, president of Campus Consultants in New York and author of "Paying for College Without Going Broke."

A typical financial aid offer consists of two main categories: gift aid and self-help. The gift aid portion is basically grants and scholarships — money that doesn't have to be repaid. It may include a Federal Pell grant, a Federal Supplemental Educational Opportunity Grant (SEOG), state grants and grants or scholarships from the school. The self-help part of your aid package includes subsidized loans (Perkins loans, subsidized Stafford loans) and work-study.

Watch out for letters that list PLUS and unsubsidized Stafford loans as part of the financial aid package, cautions Chany. These are non-need-based loans that any student or parent can take out, and they shouldn't be considered part of the need-based aid. "With some schools, it may seem like they're giving you a package for 100% of the money, but they're just giving you loans you could get anyway," he says. That's not to say the PLUS and unsubsidized Stafford loans aren't beneficial: Their interest rates are much lower than those you'd get on a private loan. But as far as the financial-aid equation goes, Chany recommends lumping them in with your unmet need.

Also, make sure the school's cost of attendance includes books, transportation and personal expenses in addition to tuition, fees, room and board. If one or more of these isn't included in the total, you will have to add it to your out-of-pocket expenses (or family contribution) for that school in order to compare all packages fairly.

Compare Apples to Apples
The basic principle of comparing financial aid offers is that size doesn't matter — content does. "It's not so much the amount of aid that matters," Chany says. "It's how much you're expected to pay and how much the student is expected to borrow."

To figure this out, start by breaking down each offer into three categories: net cost of attendance (this is total cost of the school minus any scholarships, grants and work-study), out-of-pocket expenses (expected family contribution plus unmet need, including any PLUS loans if listed in the offer), and need-based debt (the need-based loans your child will have to take out).

You might find that the school that offered what looked like the largest aid package is actually the one that leaves your child with the largest amount of debt because it consisted mostly of student loans. Or that the private college you thought was too expensive has offered enough grants and scholarships to make it more affordable than even the public school on your list.

"Different schools have different [financial aid] packaging philosophies," says Mike Kantrowitz, publisher of FinAid.org, an online financial aid resource. "Schools that have larger endowments, like Princeton or Harvard, tend to be more generous with the grants. Schools that have a tighter budget tend to be less generous and give more loans."