Comparing Financial Aid Offers

Not all financial aid packages are alike. Here's how to figure out if the offer is as good (or bad) as it looks.

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. 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."

Look for an Upgrade
The financial aid offer you received isn't a final verdict: financial aid offices are allowed to use what is called "professional judgment" in reconsidering an initial offer if the family requests that, Kantrowitz explains.

This isn't the same as bargaining. "Schools don't negotiate the way car dealerships do," he says. To request a review of your financial aid package, there must be something in your family's finances that has either changed recently, that you anticipate will change, or that sets your family apart from other families, Kantrowitz explains. Alternatively, you might have had unusually high expenses between now and the time you filed the FAFSA, or perhaps you overestimated your income or tax bill when filling in the form, which happens often when parents complete the FAFSA before filing their taxes.

"There's only so much information you can collect with a standard form," says Sally Donahue, director of financial aid at Harvard. Just recently, Donahue says, the school shifted a family's expected contribution from $20,000 to $5,000 because they hadn't been able to relay the source of their income on the financial aid forms. It turned out the family had sold a small business the previous year and had used the proceeds to pay off debt.

To get a successful professional judgment review, write a letter to the school detailing your unusual circumstances and provide independent third-party documentation, says Kantrowitz. For example, if mom was laid off a few months ago, attach a notice from her employer.

If possible, you should also visit the school in person. "When the school sees that you've taken time out of your life to meet with them in person, it makes a significant impact," says Carl Buck, vice president of financial aid for Peterson's, the education-publishing unit of Thomson Corp.

This strategy is particularly helpful if you're asking a college to match another institution's offer. But keep in mind that playing colleges off each other doesn't always work. Many public colleges simply don't have the budget to play this game.

Don't Get Too Comfortable
When reviewing aid packages, it's worth remembering that what's offered one year might not be offered the next.

Federal aid is based on a family's income from the previous year, which obviously can be subject to change, says Elizabeth Bickford, director of financial aid at the University of Oregon. A student who qualified for the Pell grant in her freshman year, for example, might not qualify for it the year after her sibling graduates from college, or if the family's income increases, Bickford explains. In addition to that, if families with larger financial need apply in future years, current students might qualify for less aid in future years than they initially received.

And if the school offers your child a merit-based scholarship for two or more years, make sure he is comfortable with the requirements for keeping it, Bickford advises. Most commonly, schools require scholarship recipients to maintain a certain GPA. So if Junior accepts a scholarship that requires a 3.75 GPA and winds up partying too much at the frat house, you might find yourself with much heftier tuition bills for the following years. In that case, a less demanding -- albeit less generous -- scholarship might turn out to be the better offer in the long term.

Another factor to consider is college-cost inflation. The average cost of a four-year private college in 2004-05 was 6% greater than the previous year, according to the College Board. Four-year public college costs jumped even more, by 10.5%. It's important for families to factor that in and project their costs for the following four years at each of the institutions they're considering, says Buck. Peterson's "Best College Deals" allows you to project the four-year costs at specific colleges based on your individual circumstances.