How to Know if You’re the Victim of Tricky Financial Aid Award Tactics

Got a pile of financial aid awards from various schools cluttering your inbox? Are the paper versions of all those financial aid awards stacked up in your home office? I’m sure you can’t wait to toss them into the recycling bin! (Except for maybe one from a very special school — the one your kiddo’s leaning toward… Yay!)  

Your college-bound kiddo may not have quite decided where he’s going to school. That’s okay! 

Many colleges and universities have tagged June 1 as the deadline for decisions this year — and some have even extended to July 1. Check the National Association for College Admission Counseling (NACAC) College Admission Status Update for the list if you’re not sure about final decision date deadlines for various colleges and universities.

As you take a look at these financial aid awards, you know instantly that they’re not the same. I’m not talking about the types of scholarships or the work-study awards on each one, I’m talking about the layout of each award and what’s disclosed on each. Some colleges even employ a little bit of deception and as a result, may make the school look like it’s cheaper than it actually is.

This can get super confusing, and I encountered this problem a lot as an admission counselor. Parent to me over the phone: “Financial aid awards aren’t the same! Why???” To be honest, I wish there was one standard financial aid award that every college in the country would use.

They’re not standardized, so the best I can do is tell you what to watch out for!

1: Schools Often Don’t Separate Aid that Needs to Be Repaid from Aid that Doesn’t

Many, many financial aid awards don’t separate gift aid from work-study or loans. In other words, you may see various types of aid — scholarships, grants, work-study and loans — all lumped together. Can you see why that can be problematic? 

Here’s an example. Note: The amounts, scholarships and grants I’ve listed below are part of a completely fictional aid award and for demonstration purposes only: 

XYZ Merit-Based Scholarship: $15,000

XYZ Grants: $5,000

Federal Direct Subsidized Loan: $3,500

Federal Direct Unsubsidized Loan: $2,000

Federal Work-Study Program: $3,000

Private/Alternative Loan: $8,000

Total: $36,500

Grants and scholarships don’t have to be paid back, work-study money must be earned and loans must be repaid with interest. Even when schools put forth a confusing, mixed-up aid award jumble, some colleges and universities don’t do a great job distinguishing between what you need to pay back and what you don’t — like in the example above. 

It’s your job to make sure you understand every line of the aid award and explain it to your high schooler.

Here’s the list again, broken down into categories, so your high schooler can understand it more clearly:

Does not need to be repaid:

XYZ Merit-Based Scholarship: $15,000

XYZ Grants: $5,000

Must be repaid with interest: 

Federal Direct Subsidized Loan: $3,500

Federal Direct Unsubsidized Loan: $2,000

Private/Alternative Loan: $8,000

Must be earned:

Federal Work-Study Program: $3,000

Total: $36,500

I like that layout much better — it’s much easier for a 17- or 18-year-old to understand. 

2. Some Financial Aid Awards Do Not Include the Total Cost

So, this sounds like no big deal, right? You can just look up the total cost of the institution online. Sometimes when you’re comparing financial aid awards, this can get lost in translation, particularly when a college only lists scholarship amounts and it looks like your child will get more money from that college compared to another. I remember one conversation I had with a mom over the phone when I worked in admission that went exactly like this: 

Me: “Hi, Mrs. Jones! Have you and your son, Charlie, had a chance to review our generous financial aid award offer?”

Mrs. Jones: “Hi, Melissa! Yes, we have, but Competitor College XYZ is giving him $5,000 more in scholarships and other aid. That’s $20,000 over four years!”

Me: “Oh, really? Mrs. Jones, did you realize that Competitor College XYZ is $5,000 more expensive than our college?”  

Mrs. Jones: “Oh, I guess that’s not on the aid award. Yes, yes, I’m online now and see that.”

Me: “I know our college is Charlie’s first choice. Would you be willing to pay the $200 deposit today?”

Mrs. Jones: “Yes!”

Hand to heart, that’s exactly how the conversation went. The financial aid awards that don’t include the total cost right on the award may require you to do a little digging. Make sure you know the full cost — tuition, room, board and fees. 

3: Some Financial Aid Awards Include Loans Beyond Federal Student Loans

Let’s bring back my example “aid award.”

XYZ Merit-Based Scholarship: $15,000

XYZ Grants: $5,000

Federal Direct Subsidized Loan: $3,500

Federal Direct Unsubsidized Loan: $2,000

Federal Work-Study Program: $3,000

Private/Alternative Loan: $8,000

Total: $36,500

Direct Subsidized Loans and Direct Subsidized Loans Included

Look carefully at the loans I’ve included — particularly the last line. Many schools include loans on their financial aid awards — usually Direct Subsidized and Unsubsidized federal student loans. Quick details: 

• Direct Subsidized loans are available to needy undergraduate students. Each college determines the amount your child will receive. The U.S. Department of Education pays the interest on Direct Subsidized loans while your child is in school at least half-time, for the first six months after he leaves school and when your child defers (postpones) loan payments.
• Direct Unsubsidized loans are available to undergraduate and graduate students but it’s not based on demonstrated financial need. Each school determines the amount you can borrow based on that school’s cost of attendance and other financial aid you receive. Interest accrues on Direct Unsubsidized loans while your child is in school.

PLUS Loans and Private Loans Might Be Part of the Mix… 

Here’s the kicker: Some financial aid awards also include Parent PLUS loans (also called the Federal Direct PLUS loan (Direct PLUS Loan) through the William D. Ford Federal Direct Loan (Direct Loan) Program). Parent PLUS loans are federal loans that parents of dependent undergraduate students can use to help pay for college or career school. The U.S. Department of Education is the lender and the current interest rate is 7.08 percent.

The government doesn’t lend private student loans. Instead, you can get private student loans through a lender such as a bank, credit union, state agency or more. Interest rates are sometimes higher than for federal student loans. (A survey of SunTrust, Ascent, SoFi, CommonBond, Discover and Sallie Mae showed fixed rates ranging from 4.29% to 12.49%, while variable rates were offered from 1.80% to 14.18%, according to Debt.org.)

When financial aid awards include alternative or private loans, it may even look like you owe next to nothing, and that’s why I’m not a fan. It takes a little bit of the critical thinking out of the equation when the college “fills in the blanks.” I’d rather see the out-of-pocket costs at the bottom so you get creative on how you handle these costs — through a side hustle, your kiddo’s summer job, etc. 

Don’t assume everything’s covered — show your kiddo how to understand the difference between loan types.

4: Work-Study May Be Part of the Award Letter

Some schools add work-study as part of the award calculation. I’m really not a fan of this tactic because it looks like work-study’s guaranteed, but nothing could be further from the truth. Your child must earn work-study money. 

Your kiddo has to go through the trouble of visiting the human resources office at the college, choosing and applying for a job and possibly interviewing. Finally, your child must show up for that job. Not foolproof, is it? (Particularly because your kiddo may realize college is a lot of work and decides he’ll need to spend more time studying rather than working. Or he might decide he’ll earn more money working for a local landscaping company or as a server at a restaurant and will forgo the work-study job altogether.)

Furthermore, most schools pay students via direct deposit. The school won’t apply these funds directly to your child’s tuition bill. Your child may need work-study money for groceries or toiletries instead. Work-study is truly meant to be spending money — which is why I never like to see it lumped together with everything else.

The bottom line: Be wary if financial aid is included in the major calculation like it was in my example from above:

XYZ Merit-Based Scholarship: $15,000

XYZ Grants: $5,000

Federal Direct Subsidized Loan: $3,500

Federal Direct Unsubsidized Loan: $2,000

Federal Work-Study Program: $3,000

Private/Alternative Loan: $8,000

Total: $36,500

It’s terribly misleading.

5. Fees Aren’t Disclosed

Do you see the full costs listed on the financial aid award? Are you sure? Many colleges and universities list only the direct costs on financial aid awards — tuition, fees, room and board (if the student lives on campus).

Look carefully at a school’s costs page online or call your child’s No. 1 choice right now to be absolutely sure that you’re considering all costs. Some colleges may require fees like these: 

• Lab fees (if you’re child is going to major in the sciences)
• Orientation fees
• Campus fees
• Athletic fees
• Health and wellness fees
• Tech fees
• Transportation fees
• Other fees

Get absolutely clear about which fees are part of the financial aid award. t ny do not list all college costs. 

6. Loan Terms and Interest Rates Aren’t Included

You’ll never, ever see how much fees and interest rates will cost you just by looking at your financial aid award. There are too many variables for that to be possible, including things like interest rate changes. I wish you’d be able to see what it could look like, similar to an amortization schedule you receive when you get a mortgage.

The only real way to estimate the full loan costs over time is to use an interest rate calculator or ask your loan servicer detailed questions about payments over time. I encourage you to do that! 

7. Colleges Leave You in the Dark on Tuition Increases

You’ll never be able to see what the tuition will be in three years, when your child is a fourth-year student. Why not? Because colleges typically don’t implement tuition increases until mid-year — they don’t even know what the increases will be yet. 

The other side of this is that in the majority of cases, scholarships don’t increase as tuition increases. So, for example, the $15,000 scholarship in my example wouldn’t increase two percent if tuition goes up two percent.

Now, it’s possible to find colleges that freeze tuition for you after your first year of college. It’s also possible to find colleges that do offer merit-based scholarships that keep pace with tuition changes. It’s just a matter of figuring all of this out ahead of time. 

Do Some Sleuthing 

I liken this part of the college search to being a detective. You really have to analyze everything, take more than a passing glance at most financial aid awards and explain them in depth to your high schooler. Even if you do get it all, he’s likely in the dark. 

Don’t be afraid to call up a financial aid officer or admission counselor and ask them pointed questions about the financial aid award. Ask them to go through it line by line with you and explain everything in detail. Here are a some really good questions to ask related to everything in this post:

• Do scholarships increase as tuition increases?
• Which aid must my child repay?
• What are the college or university’s total costs? What are the fees?
• Tell me the exact out-of-pocket cost — without loans and work-study.
• What are the loan interest rates?

Be your own advocate and have your student go along with you for these conversations. The last thing I want is for you and your student to think your share of the costs is lower than it really is and fall prey to the tricky techniques colleges use.