Congratulations! Your hard work building a solid GPA and getting the highest SAT or ACT score possible has earned you an acceptance letter to a great school.

But can you afford it?

An additional package – your financial aid award letter — also arrives in the mail or in your inbox with more numbers and unfamiliar terms than your last math test. In a sense, this letter, rather than your initial acceptance letter, will actually determine your future attendance, as it establishes your ability to afford the school.

The financial aid award letter is meant to summarize the cost of attendance and allow you to see what aid has been awarded to you from the institution. But it can be a little hard to decipher. So, here’s a guide to help ensure that you are making the best financial decision for your education, and have the proper tools to successfully compare colleges by their financial aid offers.

Expected Family Contribution and Financial Need: An Explanation

If you’re receiving a financial aid award letter, that means you likely filled out the FAFSA — the importance of which becomes clear once you open that envelope (or email).

Colleges calculate the amount of aid they’re able to offer you partly based on your Expected Family Income, or EFC. The EFC is the amount of money the U.S. Department of Education determines your family should be able to contribute towards education costs, based on the information provided in your FAFSA.

Put simply, the cost of college minus your EFC equals your financial need, and your financial aid award letter is the college showing you how much of that need they’re willing to meet.

The EFC allows your college to effectively determine your eligibility for federal and state financial aid, and possibly extend additional college funds on top of that. This aid from the institution can be through gifts such as scholarships and grants, or through loans, which are intended to be paid back upon graduation.

Beginning with the base price and working your way through the gift aid and qualified loan options will allow you to make the best financial decision.

Start With the Base Price

Most likely, you investigated the tuition page on the school’s website before applying to the school and have a general idea of their tuition. Now is a great time to revisit that page. Verify whether the published cost is for a semester or for the academic year, and whether this number includes other fees. Visit the housing page and verify whether the housing price you’ve had in mind includes meals. Compare this with the price you see on your letter.

Keep in mind that the financial aid offer will likely only concern the tuition number, so when you read the aid letter, make sure you are adding in the housing, meals, and fees amount to your bottom line.

Gift Aid: Money you won’t have to pay back

The first section of deductions on most financial aid award letters is typically reserved for gift aid, or aid that is not expected to be repaid, such as scholarships, tuition waivers, and grants.

The first deduction is usually for merit-based scholarships, or awards based on your achievements with your GPA and score on the SAT or ACT. Many top-tier schools offer scholarship priority to those who applied early decision so that dedicated students can be rewarded for choosing their top school early, but even if you didn’t apply early, you very well may receive a merit scholarship. Universities also offer departmental scholarships for students in certain majors, or additional scholarships based on your essay submissions. Scholarship awards from these categories should follow the merit scholarships.

The next set of gift aid you might find comes in the form of grants and tuition waivers. These awards are typically need-based, as opposed to merit-based. Grant and tuition waiver funds are accessed by completing the FAFSA or the CSS Profile before receiving your financial aid package, and will commonly be detailed in the middle of your financial aid letter. These funds are offered at the discretion of each school, based on your EFC.

Loans: Money you will have to pay back

Your financial aid letter may also include offers of loans if the gift aid amounts do not cover the full cost of attendance. Typically these will be federal student loans, both subsidized and unsubsidized, as well as possibly a Parent Plus loan if your parents are also contributing to your education.

These loans are funds that are expected to be repaid after graduation. Interest rates on these loans will vary, as will the terms for repayment, all of which should be compared before accepting.

The Option of Work-Study

Work-study programs do not appear on every financial aid letter, but they’re not uncommon to find. Work-study programs allow students to work a part-time campus job.

In most cases students earn those funds via a paycheck like any other employee, but in some cases a deduction from a student’s tuition bill may be taken. In either scenario, work-study jobs allow students to take out less in student loans, and they provide other student-friendly benefits as well.

The work study allotment on your financial aid award letter allows you to visualize the bottom line should you choose to work a part-time job on campus.

A Sample Comparison

When choosing between multiple schools, the final cost of attendance is likely a major deciding factor. Here’s a demonstration of how you can compare two colleges offering different financial aid packages:

Let’s say you’re choosing between College ABC, which is a public state school, and College XYZ, a smaller, more selective private school. Imagine you have good grades, and are from a lower-to-middle income family.

As a public state institution, College ABC has a lower published tuition, however your grades, as well as your family income, are on par with those of the typical students they admit. In this scenario, College ABC doesn’t offer much in the way of need-based aid or merit-based aid. The net price is still substantial.

Comparatively, when it comes to College XYZ, your family income is less than that of the students they typically admit, and a sizable need-based scholarship is offered. Despite a higher published price, the net price ends up being lower than that of College ABC’s.

This is not to say that private colleges always end up being less expensive — certainly not. The point here is simply that your financial aid package is as individual as you are, and a pricier college may end up being a better deal than one with a lower sticker price. It all depends on what each of those schools offers you. This is why it is recommended to apply to a variety of schools and weigh your options carefully.

Keep in Mind…

• If you have received outside scholarships, on the local or national level, these funds will not be reflected in your financial aid offer. These independent funds can close financial gaps, and should play a role in making your final choice.
• It’s important to kremember that most federal grant aid, such as the Federal Pell Grant, is determined by need. Since you are expected to complete the FAFSA every year, large changes in your financial situation could alter the amount of your federal grant aid.
• While you are weighing the final cost between colleges, keep in mind that students usually have until National Decision Day on May 1st to accept their financial aid and admission offer.

The Final Decision

You can now see the important role the financial aid letter plays in the final college decision. Being able to determine the net price, or bottom line, you’d pay each school based on their financial aid letter will help you make the best financial decision for your educational future, rather than be frozen with sticker shock.