Discover Student Loans
Discover Student Loans

Secure Account Login

Forgot User ID / Password? Register Now .

It's the time of year when high school seniors across the country receive financial aid award letters from the colleges and universities to which they've been accepted. It's an exciting time, but one that sometimes brings stress and confusion, especially since award letters can be difficult to decipher.

Financial aid award letters generally include grants, scholarships, work-study programs, federal student loans and your Expected Family Contribution (EFC). Families may need to take out private student loans to fill any gaps between the financial aid provided and their EFC, but such funding isn't clearly noted in the award letter. Because each school uses its own template for award letters, it can be challenging to compare college costs apples-to-apples.

Here are a few tips to help you compare financial aid award letters.

Step 1: Understand the Different Types of Aid

Kristen Moon, an independent college counselor based in Atlanta, Georgia and founder of, says many parents and students get tripped up by the word "aid" in their award letters, particularly because colleges often categorize federal loans as aid.

"Loans are quite different from scholarships, merit-based aid and grants," says Moon, whose company provides guidance to parents and students navigating the college application process. "Loans require repayment, whereas scholarships, merit aid and grants do not."

Step 2: Carefully Review Each Award Letter

When you're ready to compare financial aid, first gather all of your award letters and a highlighter. Carefully review each letter, highlighting each type of aid and the amount offered. You may want to use two different colors to highlight: one for loans that will need to be repaid and another color for scholarships and grants that do not need to be repaid.

Step 3: Compare Award Letters

Debbie Schwartz, founder of, a Philadelphia-based organization that provides information about college admissions and financing to families, recommends separating award dollars into "buckets." You can do this by using the Discover Student Loans Award Comparison tool. In three easy steps, you can easily compare your awards and highlight the differences in the cost of attending each school.

The buckets Schwartz recommends are:

  1. Free money, which does not need to be paid back, such as institutional grants and scholarships from the college, Pell Grants, Federal Supplemental Educational Opportunity Grants and state grants.
  2. Federal student loans, which have to be repaid, including Direct Unsubsidized and Subsidized Loans, Perkins Loans or PLUS Loans.
  3. Work-study earnings, which do not have to be repaid but are not applied directly to your tuition and fees. Instead, the student receives a paycheck that is based on the number of hours worked. These funds can be used to cover living expenses, or you can put the money toward tuition or other school costs.
  4. EFC, which is used by the school to calculate your financial aid award.

If you've compared offers and you're still having trouble understanding your award letters, call the financial aid office for help.

Step 4: Calculate Your Costs

Once the awards are broken down into the four buckets, families can make a more informed decision about how much each school will cost.

To determine the true cost of college, you need to know the net cost, or the costs you need to cover after taking into account funding sources that do not have to be repaid.

Net cost is a much more accurate basis for comparing award letters because it identifies colleges with more generous financial aid packages and shows families what their actual out-of-pocket costs will be.

When you look at the net cost, you may find that a school with a much higher annual cost of attendance could actually be the more affordable option if it offers more financial aid in the form of scholarships, grants and other free money.

Step 5: Know How Long the Financial Aid Will Last

Financial aid offers typically cover only one year in school, so families must complete the Free Application for Federal Student Aid (FAFSA) every year to apply for more. There may be some aid like scholarships or grants that is guaranteed for four years, though most are not guaranteed beyond the first year, so families should verify and get the answer in writing.

Moon says scholarships and merit aid often decrease after the freshman year for two reasons:

  • Federal Direct Subsidized and Unsubsidized Loan amounts increase after freshman year, so colleges may decrease the scholarship and grant amount because students have more federal loan money available to borrow.
  • Colleges are under no obligation to offer the same award amount each year, so this could mean some students receive less aid in subsequent years.

Step 6: Look Into Outside Scholarships

Students can and should continue applying for outside private scholarships since that is free money that doesn't have to be paid back. However, Schwartz says it's important to be aware of each college's policy about award displacement, which is a reduction to the school's financial aid offer by the amount of the outside scholarship.

"Some schools won't change their financial aid award letters at all,"Schwartz says, "others will reduce the amount of [gift] aid the school offers and others will reduce loans. It's really important to know this and understand how the colleges handle outside scholarship money."

Keep in mind that when you compare college costs, price isn't the only factor. You should also consider location, academic rigor, graduation rate and employment rate. Pick the school that will give you the best combination of education and experience and leave you with the least amount of debt.

More to Explore

Did You Know?

Interested in Private Student Loans?

Learn More