How to Read and Compare Your Financial Aid Letters

What to look for in a financial aid letter

A financial aid letter shows what a school is offering to pay for your education and what you will owe. It is not a bill — it is a proposal. Schools present their offers differently, so comparing them means looking at the same pieces of information from each letter, in the same order, every time.

The letter will show your Cost of Attendance (what the school says one year costs, including tuition, fees, room, board, and books), your Expected Family Contribution or Student Aid Index (what the government thinks you or your family can pay), and then the aid the school is offering to bridge the gap. That aid breaks down into grants (money you do not repay), loans (money you do repay with interest), and work-study (money you earn by working on campus).

Key Takeaways

• Compare the same line items across all your letters: Cost of Attendance, your contribution amount, total grants, total loans, and your actual out-of-pocket cost after all aid.
• Grants and scholarships are assistance programs; loans must be repaid with interest, so a school offering more grants is offering more actual aid even if the total aid number looks the same.
• The interest rate and repayment terms on federal loans are set by law and identical across schools, but private loans vary widely and should be compared separately.
• Schools sometimes offer different aid packages to students with identical financial situations, so requesting a review or negotiation is a normal step, not an unusual ask.
• Your aid package can change year to year based on your family's finances, your academic standing, and whether the school's funding changes.

Breaking down grants, loans, and work-study

The aid section of your letter lists three types of money. Grants and scholarships are gifts — you keep them whether you graduate or not, and you never repay them. Federal loans (Stafford loans, PLUS loans) are borrowed money with an interest rate set by Congress; the rate is the same no matter which school you attend. Private loans are borrowed money from a bank or the school itself, with interest rates that vary by lender and your credit history. Work-study is a job on campus; you earn an hourly wage and the school estimates how much you might make in a year.

The most important comparison is grants versus loans. If School A offers $30,000 in aid and School B offers $30,000 in aid, but School A's offer is $20,000 in grants and $10,000 in loans while School B's is $10,000 in grants and $20,000 in loans, School A is actually offering you $10,000 more in assistance programs. After you graduate, you will owe less.

Work-study is real income, but it is also time. The school's estimate assumes you work a certain number of hours per week. If you are also working off-campus or have a heavy course load, you may not be able to earn that amount, so do not count on it as may provide money.

Calculating your actual out-of-pocket cost

Your out-of-pocket cost is what you or your family will actually pay in cash or loans. To find it, take the Cost of Attendance, subtract all grants and scholarships, subtract work-study income (if you think you can realistically earn it), and you are left with what you owe through loans or family payment.

Example: School costs $60,000 a year. You receive $15,000 in grants, $5,000 in work-study, and are offered $20,000 in loans. Your out-of-pocket cost is $60,000 minus $15,000 minus $5,000 = $40,000, of which $20,000 is borrowed and $20,000 your family pays. If your family cannot pay $20,000, you would need to borrow more, which means taking private loans or asking the school to increase your federal loan offer.

This is the number to compare across schools. School A with a $60,000 cost and $40,000 out-of-pocket is not cheaper than School B with a $50,000 cost and $42,000 out-of-pocket, even though the sticker price is lower. School B is the better deal.

Understanding federal versus private loans

Federal loans have fixed interest rates set by Congress, income-driven repayment options, and forgiveness programs. The rate does not change based on your credit score or the school you attend. As of 2024, federal undergraduate loans have an interest rate of 8.5%, but this changes each year based on Treasury rates. Federal loans also allow you to pause payments if you face financial hardship, and some federal loans can be forgiven after 20 or 25 years of payments under income-driven plans.

Private loans have interest rates that depend on your credit score, your co-signer's credit score, and the lender's policies. Rates can be fixed or variable (meaning they go up or down over time). Private loans do not have income-driven repayment or forgiveness options. If you take out a private loan, you are committing to repay the full amount no matter what happens financially after graduation.

Federal loans should be your first choice because they offer more protection. Only borrow private loans if you have exhausted your federal loan limit and still need money. If a school's aid letter includes private loans, ask whether the school can increase your federal loan offer instead.

Comparing multiple offers side by side

Create a simple table with one school per column. List these rows in order: Cost of Attendance, your Expected Family Contribution or Student Aid Index, total grants and scholarships, total federal loans offered, total private loans offered, work-study estimate, and your calculated out-of-pocket cost. Do this for every school, using the exact numbers from each letter.

Once you have the table filled in, the out-of-pocket cost column tells you which school is cheapest. But cost is not the only factor. Consider also: Does the school offer more grants to students in later years, or does aid decrease? Are you required to live on campus all four years, or can you move off-campus and reduce housing costs? Does the school have a co-op or internship program where you can earn money during school? What is the graduation rate, and what do graduates earn in your field?

Some students choose a more expensive school because the degree is worth more in their field, or because the school offers better financial aid in years two, three, and four. Some choose a less expensive school to graduate with less debt. Both are reasonable decisions — the table just makes sure you are comparing the same things.

Asking schools to reconsider their offer

If you receive an offer that seems low compared to other schools, or if your family's financial situation has changed since you filled out the FAFSA, you can contact the school's financial aid office and ask them to review your package. This is called a professional judgment review or an appeal, depending on the school's language. You are not asking for charity — you are asking the school to reconsider based on new information.

Bring documentation: a letter explaining the change in your family's finances (a job loss, medical expense, or change in family structure), recent tax returns or pay stubs, and the financial aid offers from other schools if you want to mention them. Some schools will increase grants if you show them a better offer from a competing school. Others will not, but they may increase your federal loan offer or adjust your Expected Family Contribution if your circumstances have genuinely changed.

The worst outcome is they say no. The best outcome is they find money they did not initially offer. It is worth the phone call or email.

What changes year to year

Your financial aid package is not locked in for four years. Each year, you will submit a new FAFSA, and your aid will be recalculated based on your family's current income and assets. If your family's income goes up, your aid may go down. If it goes down, your aid may go up. Schools also adjust their aid budgets year to year, so a student who received a large grant as a freshman might receive a smaller grant as a sophomore if the school's endowment declined or enrollment changed.

Additionally, your academic standing affects aid. If you fall below a certain GPA or do not make satisfactory progress toward your degree, you may lose federal aid may be able to access. Some schools also have merit scholarships that require you to maintain a higher GPA to keep them. Read the fine print on each scholarship or grant to understand what you need to do to keep it.

Frequently Asked Questions

Can I negotiate my financial aid offer?

Yes. Contact the financial aid office and ask for a review if your circumstances have changed or if you have a competing offer from another school. Schools cannot always increase grants, but many will reconsider if you provide new information. Be honest and specific about why you are asking.

What is the difference between a grant and a scholarship?

Both are assistance programs you do not repay. Grants are usually based on financial need and come from the school or federal government. Scholarships can be based on merit, need, or other criteria (athletic ability, major, background) and come from the school, private organizations, or employers. For comparison purposes, they work the same way — they reduce what you owe.

Should I take out loans if I do not have to?

Not necessarily. If your family can pay without borrowing, that is usually the better choice because you will owe nothing after graduation. But if borrowing allows you to attend a school with a better program in your field, or to work fewer hours and focus on your studies, the long-term benefit might outweigh the debt. Compare the monthly loan payment you would make after graduation against the salary you expect to earn in your field.

What if I cannot afford any of my offers?

Contact the financial aid offices at the schools you are most interested in and explain your situation. Ask whether they have additional funding, whether you can defer enrollment and reapply next year, or whether they offer payment plans that let you pay tuition in monthly installments instead of a lump sum. Some schools also have emergency funds for students in financial crisis.

Do I have to accept the full aid package a school offers?

No. You can accept the grants and scholarships and decline the loans or work-study. However, if you decline aid, you will owe more out of pocket. If you decline work-study, you will need to find another way to pay that portion. Read each school's instructions carefully — some require you to accept or decline the entire package as one unit.