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 and/or CSS Profile 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. However, most financial aid packages have some clear similarities.

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.

• COA
• SAI
• Work-study
• Pell Grants
• State Grants
• Institutional Grants
• Merit Scholarships
• Federal Direct Student Loans (Unsubsidized vs Subsidized)
• Parent Plus Loans

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

COA

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

SAI

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

Work-Study

Eligible students work on campus between 5-10 hours per week at minimum wage or higher. 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 grants from the federal government. 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 2025-2026 school year is $7,395. Amounts can change yearly, so you should check current Pell Grant award amounts. 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 you graduate, withdraw from school, or drop below half-time enrollment status
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 enrolled at least half-time in college. Interest begins accruing 6 months after you graduate, withdraw from school, or drop below half-time enrollment status.
   Neither subsidized nor unsubsidized federal student loans require credit checks. This 6-month period after leaving school is called a "grace period" and gives you time to find employment and get financially settled before you must begin making monthly loan payments

Neither subsidized nor unsubsidized federal student loans require credit checks. This 6-month period after leaving school is called a "grace period" and gives you time to find employment and get financially settled before you must begin making monthly loan payments. Read more about these types of federal loans for more information.

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 two 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 - 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 - 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.

Financial Aid Award Letter FAQs

Still have some unanswered questions? Here are some financial aid award FAQs students and families often have and their answers.

What is the difference between grants, scholarships, and loans in a financial aid award letter?

Grants and scholarships do not need to be repaid, while loans must be repaid with interest. Interest begins accruing immediately on unsubsidized loans while you're in school, while subsidized loans have interest paid by the government while you're enrolled.

Can I negotiate or appeal my financial aid award letter?

Yes! If your financial circumstances change or you have better offers from other colleges, contact the financial aid office with documentation of your other offers. This process is called "appealing." 

What happens if my financial aid isn’t enough to cover the cost of college?

You could try applying to additional scholarships, exploring a work-study program, or loans.

Do financial aid packages change every year?

Potentially. Your financial aid may change each year based on financial need, the college's available funding, or your academics.

What should I look for when comparing financial aid award letters from different colleges?

Focus on net cost after grants and scholarships, loan amounts, renewal conditions, and whether work-study is included.

Do test-optional colleges still give merit scholarships?

Yes, many do! Merit scholarships at test-optional schools often emphasize GPA, leadership, community service, essays, and letters of recommendation when test scores aren't submitted. This article from College Aid Pro has a lot more information on the types of merit scholarships.

How do Pell Grants affect the rest of my financial aid package?

Pell Grants reduce the overall cost of attendance and are often supplemented with other aid types or loans.

Can I lose my scholarships or grants after freshman year?

It depends. Some awards require maintaining a minimum GPA or meeting the renewal conditions each year.

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 September 18, 2025 for accuracy and comprehensiveness.