College A offers you $45,000 in financial aid. University B only offers $20,000. College A is the best choice.
Not necessarily. Maybe College A’s award is made up mostly of loans, and perhaps the school itself is very expensive. University B’s financial aid package, on the other hand, could be entirely scholarships, and the overall cost of attending could be lower.
In this case, University B would be the best choice.
In order to accurately compare college financial aid packages, you need to understand the full cost of the school and the type of financial help it is providing. And that’s not as easy as it sounds. Colleges all represent their price tags differently; some might include room and board in the equation, some might not, and so on. Meanwhile, financial aid packages are made up of any number of grants, loans, and work-study opportunities, each with an ambiguous name and a novella of fine print.
That’s why financial aid awards often confuse students and their families, and why it’s so important to make sure you understand what each one of your financial aid packages really entails. Because even a small mistake can cost you—literally.
To correctly interpret and compare college financial aid offers, you need to start by calculating the “net price” of attending each school. This is very different from the advertised price and much more important.
Here’s how to determine the net price:
- Determine the cost of attendance (COA). This is far more than just tuition and fees. It’s tuition and fees plus the living expenses you will incur while going to a specific school, including room and board, books, activity fees, equipment, transportation, and so on. If a college doesn't tell you its complete COA outright on the financial aid award letter—and many don’t—check the website. If it’s not listed there or the information is vague, call the financial aid office directly.
- Ensure the COA is accurate for you specifically. Costs vary from student to student, and the COA provided by your schools may not take your individual needs into account. For example, maybe they estimate books to cost $250 each semester. But you’re in a highly specialized science major, and you know your books will set you back more along the lines of $500. Another example is if you are looking at a college in New York City, but your family lives in Los Angeles and you plan to visit every holiday. That is a significant cost you need to factor in under transportation. If you make the numbers that calculate the COA as specific as possible, your estimate will be more accurate.
- Carefully determine the total dollar amount of aid that is free. Free aid is the money you don’t have to pay back—primarily scholarships and grants. You need to differentiate these awards from any loans that might be baked into your financial aid package. Federal loans are often included in financial aid “awards”—but they’re still loans. They have to be paid back and therefore don’t actually lower your out-of-pocket cost. But some colleges tend to try to gloss over the reality of paying back thousands of dollars. Listing loans under the common phrase of “financial aid award” is a perfect example. Money isn’t an award if you have to pay it back. In addition, some schools use confusing acronyms when listing out types of financial help. They might use only the letters “L” or “LN” to signify that something is a loan. So pay close attention to the details, and if you're even slightly unsure whether financial aid is a grant or loan, call the school.
- Subtract the free aid from the figure you calculated for COA. The remaining amount is your total out-of-pocket cost, also known as the net price. This number, the net price, is the only figure you should pay attention to when comparing the cost of schools.
In summary: Cost of attendance – Free aid = Net price, aka the number you should use to compare the cost of your colleges
If you don’t trust your math, there are several online calculators that can help you. Among the best are a tool by the Consumer Financial Protection Bureau and two calculators from FinAid, which similarly allow for the comparison of net prices and characteristics for up to three schools. (While the former is more user-friendly, the FinAid ones provide for more detailed calculations.)
Keep in mind, once you have the net prices of your top colleges, there are important financial aid considerations that can’t necessarily be quantified. With scholarships, be sure to understand the requirements and time frame. If a scholarship requires you maintain a 3.9 GPA in order to receive the money, it may be difficult to keep. Also, make sure you know whether the award is for all four years or not, and whether it is likely to change after your first year. Schools will sometimes offer larger amounts of money to incoming freshmen in order to attract more students, but then reduce the amount of aid when they are upperclassmen. This is known as “frontloading.”
When it comes to loans, one of the biggest distinctions to look out for is subsidized vs. unsubsidized. Subsidized loans are always preferable because they don't begin accruing interest until after you graduate. Understand, too, that any unsubsidized or private loans the college offers in your financial aid package are not need-based and are therefore available to anyone. That means you shouldn't give them much, if any, weight when comparing financial aid offers.
Finally, when comparing offers, remember that the value of the college may be as important as cost. It’s not worth saving money by going to the cheapest school on your list if you’re going to have a hard time finding a job afterward. Numbers to pay attention to when evaluating value include graduation rate (typically the percentage of students who graduate within six years); rate of employment after graduation (be aware that this may be graduates’ overall employment rate, meaning they could be working in jobs that don’t require a degree); average reported salary; and loan default rate. This data can usually be found on a college’s website, but you can also find it in one place thanks to a comparison tool from NerdWallet and the CollegeNavigator tool from the National Center for Education Statistics.