Financial aid awards: 4 things you need to know

Piggy bank with a graduation cap with dollar bill
Karen Roach

(MoneyWatch) This is the season for financial aid awards. Colleges and universities across the country are dispatching financial aid letters like these to families of high school seniors, as well as returning college students.

Unfortunately, many of these award letters are terribly confusing. It almost seems as if some letters are intentionally confusing because if parents can't decipher an aid award, they won't know if a school is stiffing them.

To prevent this from happening, here are four things to look for when reviewing a financial aid letter:

1. Check for grants and scholarships

This money doesn't have to be repaid, so you want to see a healthy portion of grants and scholarships in a financial aid award.

2. Look for the cost of attendance

What is the school's sticker price? Sometime financial aid awards don't include what is officially called the cost of attendance. The cost of attendance is supposed to include such things as tuition, room/board, travel, textbooks and fees for such things as health services, labs and student life. Ideally, the costs will be itemized on your financial aid letter.

The cost is one of the critical things that you need to know to determine if your award is any good. As strange as this will sounds, some schools don't include the cost of attendance in their letters. Other institutions low ball the cost by leaving out some expenses.

3. Watch out for the loans

One way that schools make their packages look more attractive is to include loans. The only loans in an aid package should be government loans with more favorable terms that families qualify for due to their lower incomes. The two loans in that category are the subsidized Stafford Loan and the Perkins Loan. Don't be impressed if you see a  PLUS Loan for Parents or an unsubsidized Stafford Loan, which are available to all parents of all incomes.

4. Look for your expected contribution

You won't know if your award is a generous one unless the letter includes what the parents and the child are expected to contribute. These contribution figures will be based on the calculations that are generated when a family files for financial aid. There should be a line stating what a school expects the child to contribute (it will be minimal)  and what the parent(s) must contribute.

Without knowing what these numbers are, you can't adequately assess the offer. For instance, let's suppose that the combined expected contribution of the parents and child is $20,000 and the school costs $55,000. If the school only provides grants totaling $7,000, the family would face a $28,000 gap between what the family can afford to pay and what the school is offering.

Bottom line: Make sure to carefully examine all financial aid awards. If you don't understand something in the award offer, contact the school.