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3 min read

How to Read a Financial Aid Award Letter [With 2 Examples]

How to Read a Financial Aid Award Letter [With 2 Examples]

You've narrowed down your list of colleges, sent in your applications, and filled out your FAFSA form online. After you receive your acceptance letters, the college financial aid office will send you a financial aid award letter detailing exactly how much it will cost you to attend their college.  

It is important to understand financial aid terminology because there is no standardized financial aid package. In this article, we'll define the following terms to help you understand your financial aid award letter. Click on the links to jump to the corresponding section in the article.

We'll also cover examples of financial aid award packages.



COA = Cost of Attendance. This includes tuition, room, board, books, and other fees. 



SAI = Student Aid Index. This is the amount your family will be expected to pay out of pocket, as determined by the new FAFSA.



Eligible students work on campus between 5-10 hours per week at minimum wage. You must have selected yes to the work-study question on the FAFSA to have it on your financial aid package. Don't count on this money to pay tuition bills, as you must work before receiving a paycheck. A work-study is typically used for spending money during the school year.


Pell Grants

Pell Grants are Federal Government grants. These do not have to be repaid. Pell Grants are based on family income in addition to other criteria on the FAFSA. The maximum amount for the school year 2024-2025 is $7,395. Amounts can change yearly, so you should check current Pell Grant award amounts here. You may use Pell Grants for a maximum of 12 semesters.


State Grants

The name and amount of state grants change state by state. The deadline to file the FAFSA to receive state grants also varies. A grant does not need to be repaid.


Institutional Grants

Institutional Grants are financial aid that is given out by the college based on family need. The amount and requirements vary by the college or university.  


Merit Scholarships

Merit scholarships are money earned by the student based on grades/test scores and not by financial need.


Federal Direct Student Loans

  1. Unsubsidized Federal Student Loans are loans given in the student’s name that must be paid back. The government does not subsidize this loan, meaning the interest accrues while you are in college. You'll begin paying back this loan 6 months after leaving college.
  2. Subsidized Federal Student Loans are loans given in the student's name that must be paid back. The federal government pays the interest on subsidized loans while you are in college and then begins accruing interest 6 months after you leave college.

Neither subsidized nor unsubsidized federal student loans require credit checks. Read more about these types of federal loans here. 


Parent Plus Loans

Parent Plus Loans are offered to a parent, who must pass a credit check when the financial aid package doesn't cover the full cost of college for a student. This can be a very risky way to pay for college and interest rates are higher than Direct Student Loans. 


Examples of Financial Aid Packages

So, now that you have an understanding of the terms that will be included in your financial aid packages, here are some further tips about comparing financial aid packages.


Below are 2 examples of financial aid packages. Test your knowledge using the above descriptions to decide if you would accept the aid offers or continue looking for a school that is affordable to you.

Example Financial Aid Package: University #1

COA or Cost of Attendance   Financial Aid Package  
Tuition & Fees $7,870 Federal Pell Grant $6,195
Room & Board $9,128 State Grant $2,000
Books $1,314 Academic Scholarships $2,000
    Unsubsidized Direct Student Loan $2,000
TOTAL COA $18,312 Subsidized Direct Student Loan $3,500


COA - Financial Aid Package = Cash Still Needed to attend

$18,312 - $15,695 = $2,617 needed to attend University #1


Extra costs you must still consider include transportation to and from college, everyday personal expenses such as toiletries, and loan origination fees.  

Does your family have any college savings?  How could you earn $2,617 to accept this offer?

Example Financial Aid Package: University #2

COA or Cost of Attendance   Financial Aid Package  
Tuition $53,180 Federal Pell Grant $6,195
Fees $1,260 Institutional Grant $60,224
Books $1,000 Unsubsidized Direct Student Loan $2,000
Room & Board $17,1000 Subsidized Direct Student Loan $3,500
    Work-study $1,535
TOTAL COA $72,540    


COA - Financial Aid Package = Cash Still Needed to attend

$72,540 - $73,454 = -$914 refund to the student for University #2


Keep in mind that the $1,535 from work-study won't pay the bills but will be used for spending money, so be prepared to save that amount over the summer. It's also worth remembering that student loans are full recourse, meaning that they do not go away in bankruptcy. The federal government can decrease your paycheck or even Social Security benefits to pay back the student loan.


Evaluating Your Options

As your acceptance letters and financial aid packages start to roll in, this time of year can be exciting and nerve-wracking! We hope this article helped you understand some of the terms to familiarize yourself with when it comes time to decide where you will enroll, and ultimately, how much it'll cost you to attend. So, which offer would you accept?

This article was originally published on March 22, 2021. It was updated on May 9, 2024 for accuracy and comprehensiveness.

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