Breaking down your financial aid offer letter

Male student looking at a brochure with his dad in the kitchen; mom and sister in the background

What each section of your financial aid letter means.

It’s an exciting time: Your college acceptance letters and financial aid packages are rolling in. And if you’re like many other college-bound students, the overall price tag and the portion you’ll need to come up with are crucial factors in your college decision. That makes it all the more important that you fully understand what you’re reading. Although many schools refer to this as your financial “award” package, it doesn’t necessarily mean gifts; loans and borrowed funds can also fall under that “award” umbrella.

Below, we’ll spell out what each section of your financial aid letter means.


  • Tuition and Fees: Cost and fees for attending the school.
  • Room and Board: Cost for housing and meals on campus. Note that many schools offer a variety of meal plans at different price points.
  • Books and Supplies: Estimated cost for all materials you will need for classes.
  • Transportation / Personal Expenses or Miscellaneous: Not all schools include this estimate in the financial aid letter.

Gift aid

  • Federal Pell Grant: A program that provides need-based grants in amounts dependent upon your EFC, the cost of attendance, your enrollment status (full-time or part-time), and whether you attend for a full academic year or less. Financial need is calculated using a standard formula to evaluate the information collected from your FAFSA. This is considered gift aid; you do not usually need to repay this.
  • State Grant: All states offer grants based on financial need specified in your FAFSA. This is considered gift aid; you do not usually need to repay this.
  • Federal Work Study: Financial aid you earn by working during the academic year, typically through a part-time position on campus. This is considered self-help; you earn this money so there is typically nothing to repay. Income from this job does not count against your financial award for the following year. It’s important to note that work-study positions are not always a guarantee and can sometimes be first come, first served; it’s important to be proactive if you plan to take advantage of this self-help aid.
  • University Scholarship: Any scholarship provided directly from your college or university. Be sure to understand any requirements associated with the scholarship, as some require that you maintain a certain GPA. This is considered gift aid; you do not usually need to repay this.
  • Restricted Scholarship: Includes any scholarships awarded to you based on meeting certain criteria — anything from your ethnicity to your geographic location or other program of study. This is considered gift aid; you do not usually need to repay this.


  • Federal Perkins Loan: A low-interest loan with a fixed 5% interest rate. Your school acts as the lender, so repayments will go directly to the school. This is considered self-help; you will need to pay this back.
  • Federal Direct Subsidized Loan: Your school determines the loan amount, and the U.S. Department of Education pays the interest on the loan while you’re in school and for six months after you leave school This is considered self-help; you will need to pay this back.
  • Federal Direct Unsubsidized Loan: Operates just like the Federal Direct Subsidized Loan, except you are responsible for paying the interest on this loan. Interest begins accruing as soon as the loan is activated. This is considered self-help; you will need to pay this back.
  • University Campus Loan: Any need-based loan directly from your college or university. This is considered self-help; you will need to pay this back.
  • Parent PLUS Loan: A federal loan available to parents of dependent undergraduate students. This option is listed as a suggestion; you are not required to take out this loan. Parent PLUS loans have flexible loan limits. For the 2016-2017 academic year, the interest rate was a fixed 6.31%. This is considered self-help; you will need to repay this.

The bottom line

  • Cost of Attendance (COA): This is an overall number based on tuition, fees, room and board costs (if you plan to live on campus), and weighted averages for other components, such as books, personal expenses, etc. This varies by school, but typically, all COAs will include these components. The COA is also the maximum amount of financial aid you could potentially receive. This is not the amount you will actually be charged to attend the school.
  • Total Award: The total amount of aid you are eligible to receive from a combination of scholarships, grants, and loans. The best award would meet your full financial needs, primarily with funding from grants rather than loans.
  • Expected family contribution (EFC): After you’ve filed your FAFSA, the Department of Education uses a calculation based on income, household size, and other factors to generate the EFC, which determines eligibility for receiving federal and state financial aid. This is not what you will be expected to pay.
  • Need: COA – EFC = Need. This is the number the financial aid office at the school will use to determine your need-based aid eligibility. There is need-based aid as well as non-need-based aid.

What will you pay out of pocket?

To figure out what you are responsible for, ignore the loan section and start by determining your net cost:

COA – Gift Aid = Your Net Cost

Your net cost is more important than the COA, because this is the amount you are responsible for providing. You can consider loans and self-help options to cover your net cost, as well as any savings, income, or family contribution.

Your net cost can be paid from a combination of loans (federal or private), self-help (such as work-study programs), cash, savings, or other sources of income.

If all your gift aid, loans, and self-help options from your financial aid award do not cover your total financial need, you have a gap. You will have to come up with money to cover the gap, which can be done by taking out private loans, getting a part-time job (outside of work-study), or trying to reduce your college costs.


  • Net price is more important than overall cost of attendance. One school may have a higher COA but provide better aid through grants than a school with a lower COA. The net price is the number you want to focus on. Aim to get the best grant to loan/out-of-pocket ratio.
  • Be sure you understand which items are grants/scholarships and which are loans. Sometimes the title of each award is truncated, so be aware that “L” or “LN” may be used in place of the word “loan.” Similarly, “sub” or “unsub” may be used in place of subsidized or unsubsidized loans.
  • Don’t be afraid to ask questions, just make sure to only ask professionals at the college or university. Be cautious when relying on information you received from friends or others who have gone through the process.

Understanding gift aid versus loans/self-help

Financial aid can include “gift aid” and “self-help” aid.

  • Gift aid does not usually need to be repaid, and includes any grants and scholarships you’re awarded. School funding varies, particularly depending on if you’re looking at a public or private college, so gift aid funding can vary widely from school to school. Gift aid may need to be repaid if you do not complete requirements, such as finishing out the term.
  • Certain grants (such as the Federal Pell Grant and certain state grants) are based solely on your EFC and thus won’t change from school to school.
  • Institution-sponsored (and some federal and state) grants and scholarships are based on specific awarding policies of the school, so these amounts will differ.
  • Self-help aid typically includes all federal student loans and work-study programs.
  • Self-help aid requires some form of commitment from you, whether that is loan repayment or holding a job in the work-study program.
  • Never pay for financial aid help; talk directly to the schools.
  • Pay attention to deadlines. Colleges and universities can have their own sets of deadlines, and they may vary by school.

Now you can head to the Consumer Financial Protection Bureau to see how your offers from up to three schools compare.

Note: Be aware of some changes in the process starting in the 2017-2018 academic year.

Keep searching for scholarships throughout your college career — it’s not a one-and-done process. Search online for available scholarships; don’t just rely on what is listed on the college websites.

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