By Michelle Sandoval
Over the next few months, students who applied for scholarships will begin to receive letters outlining if they’ve been awarded and how much they will receive—a very exciting time for recipients and their families. As you begin to read through the letters, you may find that they are sprinkled with terms that are new to you. Since it’s common for many students to have questions about their letters, I put together a quick overview of the four important terms you should know and what they mean:
1. Total Cost of Attendance
This is the yearly amount that a school estimates it costs to attend their institution. Direct costs reflect those necessary charges for school enrollment, such as tuition and fees, and room and board. This amount can be found on most school’s main financial aid websites.
Good to know: Sometimes, the amount that a school provides as their Cost of Attendance (COA) includes more than just the “direct” costs and can include “indirect” costs such as books, supplies, health insurance, transportation, and other personal expenses. These costs vary from student to student depending on their personal circumstances (i.e. if you are living on or off campus and if you have a dining meal plan, etc.). The most accurate COA is that which only includes direct costs; however, students must still account for possible changes in that amount.
2. Free Money
Keywords such as: “scholarship,” “award,” or “grant” are considered “free money.” These are awarded to students who have applied for the award and does not require the student to pay back the amount. The total amount of a student’s free money can be subtracted from the total COA, and can include federal, state, and institutional awards.
Good to know: In order to receive most of the promised “free money,” students must complete the FAFSA and any other paperwork that the school asks for, including maintaining certain GPAs for those scholarships based on merit.
Loans are set amounts of money that a student or parent borrows from a financial institution with the agreement that it will be paid back, often with interest. Based on your FAFSA, a school can determine your eligibility in receiving “borrowed” money to help pay off your school costs. These come in all types and are seen in the form of loans, which can be subsidized, unsubsidized, federal, or parent PLUS.
Good to know: This money is not free and must be paid back, and usually with added interest. It is up to the student to compare the different interest rates between the types of loans being offered in their award letter. A student does NOT have to accept any loans offered and can shop around for the best loan for their situation. Sometimes a student is not offered loans through the institution and must look elsewhere for more money to cover remaining costs, such as a bank loan (which might have significantly higher interest rates).
Your Estimated Out-of-Pocket Cost
Your estimated out-of-pocket cost is the remaining balance due to the institution, once you’ve applied all scholarships, financial awards, grants, and loans to the total COA. Students and their families should understand the formula used to calculate just how much the first year in college would cost. Here’s what you’ll need:
1. First, determine the college’s cost of attendance (COA), as described above.
2. Then total up the amount of “free money,” such as scholarships, awards and/or grants.
3. Next, total up the amount of loan money you and your family have chosen to accept.
4. Finally, apply the equation: Take the total COA and subtract the total amount of “free money” and the total amount of all “loans” from that total.
COST OF ATTENDANCE (COA)
– FREE MONEY
– ALL LOAN MONEY
YOUR ESTIMATED OUT-OF-POCKET COST
The Bottom Line
What’s left at the bottom of the line is your estimated out–of-pocket cost, which the student is responsible for covering. To reduce the remaining out-of-pocket cost, students can apply to local and state scholarships, work part-time jobs, or use personal savings accounts. A school may offer the student the opportunity to find an eligible Federal work-study job. If the opportunity is presented, the student still must apply and interview for the position. These positions typically provide hourly wages that vary depending on the job. In one year, a student can work and receive UP TO the amount stated in your work-study award letter.
Good to know: The amount stated in the “federal work-study” category is not a one-time check and should therefore not be viewed as automatic financial aid given to the student. Sometimes, schools do not offer work-study to a student; in these cases, a student can still work but will have to go through the regular steps of finding employment on their own.
The key to making attending your dream college come true is to apply for as many scholarships, grants and awards (“free money”) as possible. Receiving several small amounts can total up to a larger amount. For example, if you receive four $250 awards that’s $1,000 shaved off of your total COA.