How to decode college financial-aid letters

The wait is over. Your high school senior has finally started to receive college acceptance letters.

That means the often confusing financial-aid award letters won’t be far behind.

The letters from college financial aid offices outline all the federal, state and school assistance being offered to your high school senior: “free money” like grants and scholarships that don’t have to repaid, work-study opportunities and various loan packages that come with interest charges and repayment burdens.

But it can be difficult to read and compare award letters because not every school uses the same format and terminology. While creating a spreadsheet can help sort out all the numbers to determine the best offer, costly mistakes can happen if you don’t fully understand what you’re looking at.

Here are some suggestions from financial-aid experts on how to decode your financial aid award letter:

■ Know the lingo: Some schools emphasize “net price,” while others use a “net cost” figure in explaining the cost of attendance. What’s the difference and which one is best?

The net price of a school is essentially the discounted sticker price — the total cost of attendance after subtracting gift aid — grants, scholarships and other money that doesn’t need to be repaid.

It is a more accurate estimate of the bottom-line cost, said financial aid expert Mark Kantrowitz, because what you have left is the amount you’ll have to cover from savings, investments and loans.

The net cost figure is the difference between the cost of attendance and the entire financial aid package. This calculation includes loans, which do not cut college costs and make the real cost of college higher.

For that reason, noted Sallie Mae, the financial education financing company, it may make more sense to accept a smaller award that offers more scholarships and grants than a larger award that consists mainly of loans.

■ Calculate your own total costs: Some costs may not be included in the award letter. For example, this could include lab fees for science classes, materials fees for arts classes, travel expenses to and from faraway campuses, and fraternity and sorority living expenses and dues.

■ Read the fine print: Many families mistakenly assume the aid they are being given for freshman year will be followed by identical amounts in following years. The award letter should spell out conditions and contingencies, such as whether the award is renewable based on academic progress and which parts are for one-year only.

In my experience with three college graduates, schools also tend to front-load the freshman year offer with more generous scholarships and grants to attract students. But the awards are less generous in subsequent years.

■ Don’t be afraid to negotiate: Ask the financial aid office to review your offer, especially if your family has had some recent and unexpected financial circumstances such as job loss, medical expenses or the death of a wage earner in the family.

Most schools have a review system in place, but you’ll need to provide documentation to support your appeal and have a number in mind for what you’re seeking.

■ Look beyond the numbers: Think about campus culture, proximity to your home, social scene, sports and activities and other quality of life considerations. Add these pros and cons from every school under consideration to your spreadsheet before decision day.