Family finances: How to decipher a financial aid letter

Figuring out how much college will cost can be complicated, especially when some schools blur the lines between loans and grants.

College websites and promotional materials publish sticker prices, which can easily top $65,000 a year at a private college or $25,000 a year for a public state school. But most families will pay far less. Need-based financial aid awards often cut a school's sticker price in half for families who qualify. And non-need-based aid further reduces the costs for stellar students.

Still, how much any financial aid award will shave off your bill remains a mystery until after your child has been accepted. Then, within about two weeks, you'll receive a letter summarizing the types, sources and amount of financial aid being offered. Many of the letters, however, may be missing important information or make financial aid awards appear more generous than they are.

If your child is headed to college soon, it’s best to examine the costs on your own. Start by calculating the full annual cost of attendance for each school that has accepted your student. You can't always take the listed costs at face value because colleges often exclude from award letters some expenses or underestimate how much students will spend on things such as textbooks and transportation.

Use the highest estimated book expense. You should also adjust transportation expenses for each school to reflect how far -- and how often -- your student will likely travel for school breaks. Then add up the cost of tuition, fees, room and board, books and supplies, and transportation to determine the sticker price for one year.

Next, decipher the aid. Most colleges group different types of financial aid under the same umbrella. It can be difficult to tell which items are scholarships and grants and which are loans. Ask the financial aid office if the award is likely to shrink in future years, or visit www.collegenavigator.gov to see how the average awards for first-year students compare with those of all undergraduates.

To see how much each school will cost your family, subtract the gift aid your student was awarded from the estimated cost of attendance. This is the amount your family is expected to contribute from savings, income or loans to cover costs for one year. If your student has been accepted at more than one school, make your own chart to compare each school’s costs and offers, or use the tool at www.consumerfinance.gov.