Financial Matters: Understanding Your Financial Aid Letter

You’ve opened the email, logged into the portal, and there it is: your student has been admitted and offered a financial aid package. Relief and excitement last about thirty seconds. Then you start scrolling. Numbers appear. Some seem promising. Others are confusing. Loans and grants blur together, unfamiliar acronyms pop up, and suddenly you’re wondering whether this school is truly affordable or whether you’re missing something important.

You’re not alone. Financial aid award letters are notoriously difficult to interpret, largely because there is no required standard for how colleges present them. While schools follow general federal guidelines, they are free to format award letters however they choose. That means two colleges can offer very similar aid packages and make them look completely different on paper. Understanding how to read these letters is essential before making any enrollment decision.

A financial aid award letter outlines what a college is offering for one academic year. Most include some version of the school’s cost of attendance, the types of aid offered, your student’s Student Aid Index (SAI), and the remaining amount the family is expected to cover. The problem is that these elements aren’t always clearly labeled or even fully included.

One of the biggest sources of confusion is how loans are presented. Grants and scholarships, which do not need to be repaid, are often listed right alongside work study funds and loans that do need to be paid back. In some cases, the only clue that something is a loan is a small code such as “L” or “LN.” This distinction matters because most financial aid offered nationwide comes in the form of loans, not free money. A package that looks generous at first glance may rely heavily on borrowing.

Another common issue is how colleges calculate and present costs. Many award letters underestimate the true cost of attending the school. Some list only tuition and fees, leaving out room and board, books, transportation, and personal expenses. Those missing line items can easily add $15,000 to $25,000 per year. Families often don’t realize this gap until the semester begins and unexpected expenses start appearing.

To make sense of the numbers, it helps to understand two terms that often appear on award letters: net cost and net price. Net cost subtracts all financial aid—including loans and work-study—from the cost of attendance. Net price subtracts only gift aid, meaning grants and scholarships.

This difference is critical. Net cost can give the impression that the school is covering more than it truly is, because borrowed money is included. Net price is closer to reality. It reflects the discounted price of the college after free money is applied, but before loans. This is the number families ultimately need to plan for, whether through savings, income, borrowing, or a combination of the three.

You may also see your Student Aid Index buried somewhere in the letter. The SAI represents what the federal formula estimates your family can contribute. It is not financial aid, even though colleges may roll it into their calculations or remaining balance.

Because award letters rarely show the full picture, families should reconstruct the true cost themselves. Begin with the school’s full cost of attendance, ensuring it includes housing, food, books, transportation, and personal expenses. Then subtract only grants and scholarships. What remains is the amount your family must realistically expect to cover each year. The NASFAA comparison worksheet is a useful tool.

There are additional details worth close attention. Some colleges “front-load” financial aid, offering higher grants during the first year and less in later years. This can make a school appear affordable at the start, but far more expensive over time. Ask whether grants and scholarships are renewable and whether typical aid amounts change after the first year. If answers are vague, tools like the U.S. Department of Education’s College Navigator can provide helpful context.

Private scholarships can also affect aid packages in unexpected ways. At some schools, outside scholarships reduce loans. At others, they reduce institutional grants. This practice, known as scholarship displacement, can significantly change the value of a private award. Always ask how outside scholarships are treated before assuming they will lower your out-of-pocket cost.

Finally, remember that financial aid offers are not always final. If a package doesn’t reflect your current financial situation or seems inconsistent with offers from similar schools, you may have grounds to appeal. Appeals are most effective when they’re based on documented changes or clear comparisons, not just disappointment.

Financial aid award letters aren’t designed to make this process easy. But with the right framework, they become far less intimidating. The goal isn’t just to see how much aid is offered—it’s to understand what’s free, what must be repaid, and what your family will truly be responsible for paying, both now and in the years ahead.

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Garrett Educational Consulting provides comprehensive counseling for college and boarding school admissions as well as academic advisement. Click HERE to learn about our services.

Prepared especially for our clients and their families The information included in this newsletter is generic and assumes no liability for loss or damage due to reliance on the material contained herein. Copyright © 2025 by The College Advisor, Inc. All rights reserved.

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