Decoding the Financial Aid Letter

As the May 1st deadline approaches for students to inform colleges of their intent to enroll, it is the perfect time to decode the financial aid letter. Listed below are four types of ‘awards’ found on a typical financial aid letter.

1. Scholarships

A scholarship is an award based upon student merit, meaning, students have accomplished something exceptional. This is on their high school academic record or their standardized test score (ACT, SAT, etc…). Other types of scholarships are based upon a student’s unique talent, such as their athletic performance or musical ability. Scholarships are awarded for various lengths (first year only, renewable for four years, etc…). Make sure you investigate their stipulations. No matter the length, scholarships do not need to be repaid to the school.

2. Grants

These are similar to scholarships as they do not need to be repaid, but they are based upon ‘need.’ These can from the institution in which you were accepted or from the federal government. There are 3 common federal grants:

  • Federal Pell Grant: Up to $5,500 awarded to students who demonstrate financial need.
  • Federal Supplemental Educational Opportunity Grant: In addition to the Pell Grant, this award is up to $4,000 for families that demonstrate exceptional financial need.
  • TEACH Grant: Up to $4,000 is provided to students who take coursework in education. Students then agree to complete four years serving children in low-income communities.

3. Federal Work-Study

This program is designed for students to earn the awarded amount in an on or off campus job. There are ample campus jobs reserved for federal work-study students. Students cannot earn in excess of the amount offered on the award letter. Most common positions are working in the admissions office, school cafeteria or recreation center.

4. Loans

Many time, in the financial award letter, schools will package in loans to help defray the remaining cost of attendance. The four type of main loans are:

  • Direct Subsidized Loan: These are the first loans awarded based upon financial need. They are given for a 10 year repayment period and accruing interest is paid by the Department of Education (DOE) until 6 months after a student leaves school. The loan limit is $3,500 to $5,500, depending upon the year in school.
  • Federal Perkins Loan: These loans are in addition to the above loan, if the government deems there is still financial need. The interest rate is slightly higher, but again, interest is paid by the DOE provided a student is in school. The loan limit is up to $5,500 for undergraduate students.
  • Direct Unsubsidized Loan: These loans are not based upon financial need. The borrower is responsible for all interest. The amount awarded is based upon grade level and dependency status.
  • Direct PLUS Loan: This loan is for a student’s parents or guardians. It is not based upon need and the borrower assumes all interest. The interest rate is slightly higher, but generally it will be lower than an outside private (or bank) loan. The maximum amount borrowed is the cost of attendance, minus any financial aid received.

Remember, when comparing financial aid award letters, do not compare the amount the school is awarding the student. Compare the financial commitment of the family between schools and the amount of loans the family will have to repay.

If you have questions regarding your family’s financial aid award letter or how to prepare for the rising cost of college, contact us.

Thomas Jaworski is the lead consultant of Quest College Consulting. He is an Independent College Counselor with over ten years experience in the college admission process as an Certified Illinois Teacher (Type 09) and Counselor (Type 73) while also a member of IECA and NACAC. For more information, you can visit his website at or email him at Follow him on Twitter @Tom_QuestCC or on Facebook at

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