Graduation season is here, and the same scene is playing out across the country: High-school seniors line up to accept their diplomas and shuffle away to put in face time with the family before sneaking off to celebrate graduation with their pals. At the same time, pride-filled parents dab away tears of joy that turn to panic-y thoughts during the final measures of "Pomp and Circumstance": Our child got into college; now how the heck are we going to pay for it?
Luckily, there's some relief waiting in the mailbox. Mixed in with the pile of "happy graduation" cards are financial aid offers -- letters outlining who is willing to pay how much and for what to educate your offspring.
In simpler terms, the financial aid package answers the question: "How much are we on the hook to pay for college?" The answer, however, isn't as straightforward as the question. As you wade through the offers, here's a rundown of what you'll see and, even more importantly, what you won't see spelled out.
Here's what's spelled out in your financial aid offer
Most financial aid packages contain a mix of money from different sources:
Free money: This is how schools entice the most attractive students to attend their institutions. College or state government grants and merit scholarships are typically based solely on a student's merit (not financial need) and usually do not have to be repaid. Federal Pell Grants, on the other hand, are based on financial need. Obviously, the best financial aid is the kind you or your kid doesn't need to repay. But most families can't cover the costs of college with free money alone.
Work-study money: Students earn their keep -- and a paycheck from the school and subsidized by the federal government -- by working a campus job. Eligibility for work-study money is based on financial need.
Federal loans: Although all loans have to be repaid, the terms can vary greatly:
- A Perkins Loan is made through the school. Interest on a Perkins does not start to accrue until after graduation.
- Stafford loans -- subsidized (based on financial need) or unsubsidized -- are administered through the federal government. Subsidized Stafford loans have two things going for them: A lower interest rate than the unsubsidized variety, and they don't start accruing while the student is in school. Unsubsidized Stafford loans start accruing interest right away. Although, like the subsidized loan, payment can be deferred until after graduation.
- Lastly, there are PLUS Loans for parents, designed to help cover costs that scholarships and other aid and loans don't pick up. Interest rates on PLUS loans are usually higher than other types of federal loans.
What they don't say in the financial aid offers
The envelopes may be thick and the documents really wordy, but there's a lot that goes unsaid in financial aid packages. For example:
1. "This is not really our final offer."
The aid package is based on what you filled out on the FAFSA (Free Application for Federal Student Aid) form. Mistakes on that form will carry over into the aid offer, so look to see if there were errors, and contact the school's financial aid office to appeal.
Other times to appeal:
- Your family financial situation has changed (job loss, medical expenses, etc.) since you filled out the application.
- Even if there has been no change, if there exists a particular economic hardship that couldn't be expressed on the FAFSA, let the school know in writing.
On the flip side, if there is part of the offer that isn't right for you or is less appealing (e.g., loans with higher interest rates), you are free to decline parts of the package.
2. "100% coverage doesn't really mean 100% coverage."
Using the school's average costs is a fine place to start to figure out what your child's higher learnin' is going to cost. But averages are averages. And this is one area where you don't want to be surprised by an above-average tab after the first semester.
The cost of college isn't just tuition and room and board. Books can add thousands of dollars to your tab. Depending on the student's major, extras like lab fees, software, and other supplies can also really add up. And these costs -- including tuition -- will likely increase during the four-plus years your child is in school.
Then there's the college's location. Let's assume that your child will come home occasionally to do laundry. Will that simply require a quick cross-town commute, or will you have to pay for planes, trains, and bus fare? Tools like CollegeBoard.com's financial aid awards calculator can help you compare the costliest college costs.
3. "It's just your standard student loan. Only a lot more expensive."
See how the basics of your loans (balance, interest rate, loan term, minimum required payment) stack up with this loan comparison calculator from Finaid.org. The true cost of a loan is in the details – the APR (fixed or variable?), fees (processing and servicing), repayment terms, etc. Specifically look out for:
- Loans disguised as a free ride: Sometimes the fact that part of the aid is actually a loan is not clearly spelled out.
- Monthly payment smoke and mirrors: There are a lot of ways to frame a loan to make it look more attractive. (It's similar to the loan sleight-of-hand used at car dealerships when they ask, "How much do you want to spend each month on a car payment?") Of course, monthly payments on a 20-year loan are going to be significantly lower than a loan with a repayment term of 10 years. But over the long haul, you'll pay more because interest is accruing for an additional decade.
- Conditions of aid. For example, is it based on the student's GPA? What happens if Jr. has a bad semester? How is the money disbursed? Are the terms of the loan based on a parent's credit history? The student's?
4. "Actually, we may be able to cough up more money."
Besides appealing the package because of financial circumstances, you can also ask a school if perhaps there's some extra money back in the stockroom for your student. Search FinAid.org for specific scholarships, grants, loans or other aid you (or the school) might have overlooked and spell them out in your appeal. (But remember, the aid package can be affected by any scholarship money or other outside grants that the student has been awarded.) If a school is particularly interested in wooing your child, they may be willing to dig for extra aid.
If something isn't spelled out in a financial aid award package, ask! Go to the school's website or contact the financial aid office for answers. Fastweb.com suggests asking the financial aid office these 15 questions to clear fully arm yourself with the information you need to pay for school. After all, it's your money -- and lots of it -- on the line.
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Dayana Yochim is a proud debt-free graduate of her state school in Lawrence, Kansas. (Rock, chalk, Jayhawk!). The Fool has a disclosure policy.