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Financial Aid

Understanding Financial Aid Packages

In this guide, we'll help you make sense of complex, wordy financial aid packages so you know how much money you're getting for college.

After you've been accepted to college, you'll get a financial aid package. This will tell you how much support you're getting from the college and from the government to support your college tuition. It will also tell you how much you need to pay from your own pocket.

But, these packages can be hard to understand, so we're going to help break it down here.

Let's look at an example financial aid package:

We highlighted some keywords here. Scholarship and Grant are highlighted green because those are the best types of aid - they're free and you never have to pay them back. Work Study also isn't the worst - the college will provide opportunities for you to work and earn money to pay towards your tuition. Pro-tip, get a job at the library - you can just chill and do homework πŸ‘ŒπŸΏπŸ‘ŒπŸ½πŸ‘ŒπŸ».

Loans are highlighted in orange and yellow because you have to pay them back. Let's talk about the different types of loans for a minute. When you take out a loan, you're borrowing money from someone, in this case, the government.

Because you're borrowing it, you have to pay it back at some point - usually, after you graduate college. And, until you pay back all of it, you have to give a little bit extra as a fee for borrowing. We call this fee interest.

So, if you borrow $1000, and the interest is 1%, you have to pay $1000 times 1% = $10 per year until you start paying it back. Once you start paying it back, you'll take the interest off of whatever you still owe.

If you're getting a subsidized loan, then you won't have to pay interest while you're in college. If you're getting an unsubsidized loan, then you will have to pay interest while you're in college.

In our example above, we will borrow $4,500 in a subsidized loan. This means that we won't have to worry about paying any of it while we're in college. We will also borrow $2,730 in an unsubsidized loan, which means we'll need to pay the interest each year. The interest rate is usually around 2-5%, so we'd be paying about $100 a year in interest on this loan.

Once you graduate, you'll start paying back the money you borrowed through both loans. This tool can help you figure out how much you'll be paying back each month.


Now back at our financial aid package:

We're getting $15,810 for the year in free money (green), $1,000 in work study (blue), and $7,230 for the year in loans (yellow & orange). This is a total of $24,040 in aid for the full year.

Next, the letter should tell you how much college costs. You're looking for the Cost of Attendance or COA. This includes both tuition and the cost of living at the college. For this college, Georgia Tech, the COA is $29,048. (If you're a commuter student, you might just be paying tuition, but confirm this with your college.)

The Cost of Attendance minus Aid is how much you still need to pay for college. In this case, it would be $29,048-$24,040 = $5,008.


So, when you're comparing multiple different aid packages, pay attention to four numbers:

  • The total cost of attending = tuition + room & board

  • The amount you owe after aid = cost of attending - aid

  • The amount you get from a job = work study

  • The amount you need to take in loans = anything with the word loan

Let's say we have these two options:


College 1:

Cost of Attendance = $16,500

SourceAmount
Federal Pell Grant$3,300
Zell Miller Tuition Grant$700
Federal Perkins Loan$2,500
Federal Subsidized Direct Loan$2,500
Federal Unsubsidized Loan$1,000
Work Study$3,000
Total$13,000


College 2:

Cost of Attendance = $19,000

SourceAmount
Federal Pell Grant$3,300
Zell Miller Tuition Grant$700
Federal Perkins Loan$2,500
Federal Subsidized Direct Loan$4,500
Federal Unsubsidized Loan$3,000
Work Study$3,000
Total$17,000


For College 1, these are our four key numbers:

  • The total cost of attending = $16,500

  • The amount you owe after aid = $16,500 - $13,000 = $3,500

  • The amount you get from a job = $3,000

  • The amount you need to take in loans = $6,000


For College 2, these are our four key numbers:

  • The total cost of attending = $19,000

  • The amount you owe after aid = $19,000 - $17,000 = $2,000

  • The amount you get from a job = $3,000

  • The amount you need to take in loans = $10,000


At first glance, it might seem like you get so much more aid from College 2 and you pay less after aid. But, College 2 requires you to take out way more in loans. This is money you have to pay back later, so actually, College 1 is a better deal. You have to pay more upfront, but you take out much less in loans.


Read those letters carefully, look for those four key numbers, and you'll be in good shape. Bring on those acceptance letters and financial aid awards - you've got this!