Picture this: You’re packing up to go to your dream college when your mom knocks on the door of your room. “Honey,” she says, “I have some bad news.”

You might think that one of your parents has lost a job. But as it turns out, it’s even worse. Your family misread the financial aid award letter you received from the college in April. Now that the bill has arrived, you find that you owe tens of thousands of dollars more than you expected.

According to a 2018 New America study, this scenario is playing out across the country. And it’s not necessarily that you hadn’t read the letter carefully. Intentionally or unintentionally, college financial aid letters are often vague, inconsistent, and misleading, and students are suffering as a result.

Do You Want to Go Out With This Award Letter?

Have you ever created a profile on an online dating site or app? Did you ever, you know, fudge anything? Just a little? Maybe depict your job or your body in the most flattering light possible without actually lying? Or did you ever get excited about meeting someone in person, then discover that he or she also stretched the truth?

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The process of applying to a college isn’t so different, in that you want to look your best. But colleges are trying to woo you, too. They market themselves with appealing pictures and write enticing financial aid award letters.

But a misleading award letter could cost you tens of thousands of dollars instead of just a bad half hour at a bar.

Responsible universities and colleges do their best to help you understand their financial aid letters, and you should always ask for help.

How to Read a Financial Aid Award Letter. Do you know what's really in your financial aid package? Learn how to read a financial aid award letter so that you know what you're getting into. #financialaidforcollege #financialaid #personalfinanceAt the University of California, Los Angeles, one of the largest public universities in the country, counselors “meet with hundreds of families all day long and explain award letters,” says Eddy Conroy, outreach and communications coordinator in the Financial Aid Office.

“We work very hard to make things as straightforward and transparent as possible for our students. We even have a video that shows how we display our award notices to students.”

Conroy suggests that you check to see if your school offers similar resources. He definitely recommends that you call it if anything in your financial aid letter is unclear.

Deciphering Your Financial Aid Award Letter

To understand what you’ll pay for in your first year of college, you need to know what the school charges. This includes:

  • The cost of tuition
  • The cost of fees (activity fees, technology fees, and so on)
  • Room and board costs, if you’re living on campus

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These items may not be reflected in the financial aid award letter. If necessary, consult the school’s website or call the financial aid office to find out what the costs are. You need these numbers to avoid the nightmare scenario of knowing how many loans you’ve taken out, but not how much you’ll still need to pay.

The second set of numbers you need — what the college is awarding you in aid to help you meet these costs — should be in the financial aid award letter. But these numbers may be confusing.

What Money Is the College Giving You and What Is it Loaning You?

Most Americans fund their college education with a combination of sources. You’ll pay some of your tuition up front, out of your parents’ or your own paycheck. Then you’ll take out some loans from federal or private lenders. Many colleges also consider your financial need and offer discounted tuition, typically referred to as a grant.

When you’re considering a financial aid award letter, you need to know which lines represent grants you don’t have to pay back, and which lines represent student loans that you will have to pay back.

The “bottom line” for students and parents is the net cost, which is the “total cost to attend, including room, meals, books, and so on, minus any gift aid,” Conroy says. “Most schools are going to offer loans and work-study to help cover that net cost, but I never want a family to think loans are anything other than a longer-term alternative to paying out of pocket.

The problem is that many schools have very confusing award letters that do not clearly spell out what is a loan and what is free money.”

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New America’s study examined 515 colleges’ financial aid award letters and found 136 unique ways of describing a loan, “including 24 that did not include the word ‘loan.’” Wow! How is that possible? Well, colleges sometimes abbreviations and terminology that nobody but an expert could understand. Would you read “Fed Staff L” and think “loan”?

If your financial aid award letter includes loans — and it probably does — you may need to do some more research to determine if they’re affordable. Find out:

  • Who is giving the loan — the federal government or the college?
  • Who is taking the loan out — the student or the parents?
  • What is the loan’s interest rate, and is it subsidized or unsubsidized?

Jeannette Wright, an academic adviser for Wright College Counseling in San Diego, says the last point is what confuses the most people.

“Many parents do not know the difference between a federal direct subsidized loan and an federal direct unsubsidized loan,” Wright says.

It’s a huge difference: Subsidized loans are based on financial need. Plus, the U.S. government pays the interest on them while you’re in school and during a six-month grace period afterward. Unsubsidized loans aren’t dependent on financial need. However, they’re not as good a deal because your family has to pay the interest.

A typical financial aid award letter could list three to six loans, and you need to be able to answer the above questions about all of them to understand what you’re signing up for.

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College counselors say it’s especially important to watch out for the inclusion of Parent PLUS loans in financial aid award letters. Schools have no say over who gets these loans, which are not need-based and are taken out by parents from the federal government. So a college will attempt to look more generous than it really is by including a Parent PLUS loan on a financial aid award letter.

Many universities, including UCLA, now use the federal Financial Aid Shopping Sheet.” Conroy likes it because it “clearly labels costs, grants, scholarships, loans, and work-study, as well as clearly displaying what the student’s net cost will be.” If your university isn’t already taking advantage of the federal shopping sheet, you could still try using it as a guide.

Your Letter Is Only Good for One Year

If you’ve sorted everything out and received a big scholarship for your freshman year of college, you may think you have it made. But schools recalculate aid every year.

If your parents have a significant increase in income, if you have siblings who graduate from college while you’re enrolled, or if the college runs low on funding, financial aid award letters for your second, third, or fourth year may be less generous. If you know any juniors or seniors at the school of your choice, ask them how their financial aid changed over time.

Final Thoughts

It may seem unfair that before you get a degree in accounting, you already have to understand how to read a financial aid award letter. A lot of experts agree and are calling for Congress to mandate that schools use a more standardized letter, one that separates grants from loans, states overall costs clearly, and uses standard terminology so it’s easier to compare offers from different colleges.

In the meantime, it’s important to ask for help decoding your institution’s letter, and especially to get clear answers on what is a grant or scholarship and what you will have to pay using loans or your own money.

This is the final installment in a four-part series on financial aid. The previous pieces in this series are: