Financial Aid Award Letters Explained (How to Read Them and What Colleges Don’t Make Clear)

Getting accepted to college is exciting—but that excitement often turns into confusion the moment a financial aid award letter arrives.

Families regularly ask:

  • Is this my final offer?

  • What’s the difference between a grant and a scholarship?

  • Why does this college say I owe “$0” when I clearly can’t afford it?

  • And what exactly am I supposed to pay—now and over four years?

In this episode of Ol’ College Try, Matt Carpenter and financial aid expert Peggy Keough walk families through how to decode financial aid award letters, avoid common traps, and understand what colleges are really offering. Whether your student is in the Class of 2026 or you’re planning ahead with a younger student, understanding this step is critical.

Below, we break down the biggest takeaways every family should know before making a college decision.

First Things First: Is This the Final Financial Aid Offer?

One of the most common sources of confusion is timing.

When a student is accepted, they may immediately receive a merit scholarship offer—sometimes right in the acceptance letter. While that’s great news, it is not the full financial aid picture.

Here’s the key distinction:

A reliable indicator that you’ve received the final offer?
Most financial aid award letters include the federal Direct Student Loan, typically $5,500 for first-year students. If you see that line item, you’re likely looking at the complete package.

Grants vs. Scholarships: Why the Difference Matters

At first glance, free money is free money. But not all free money behaves the same way over four years.

Merit Scholarships

  • Awarded based on academics, talent, or leadership

  • Usually guaranteed for all four years

  • Often require maintaining a minimum GPA

  • Typically don’t change unless academic requirements aren’t met

If your student earns a $25,000-per-year merit scholarship, that amount is often a stable part of your long-term affordability plan.

Need-Based Grants

  • Based on your family’s financial situation

  • Reassessed every year

  • Can go up—or down—depending on income, assets, or changes like another child entering or leaving college

This distinction matters because families often assume a strong freshman-year grant will repeat for four years. That’s not always true. Promotions, bonuses, or changes in household income can significantly reduce need-based aid in later years.

Bottom line: merit aid is usually predictable; need-based aid is not.

Loans Are Financial Aid—But They’re Still Loans

One of the biggest red flags on award letters is how colleges present loans.

Many schools subtract loans from the total cost and label the result as “your cost” or “remaining balance.” That can be incredibly misleading.

Here’s what to watch for:

  • Federal Direct Student Loans (usually $5,500 freshman year)

  • Parent PLUS Loans, which can be much larger

  • Sometimes even institutional loans

If a college says your cost is dramatically lower because of loans, that doesn’t mean the school is cheaper—it means you’re borrowing more.

Families should always ask:

  • How much of this package is free money?

  • How much needs to be repaid?

  • What does this look like over four years, not just one?

Work-Study: Helpful, But Not a Discount

Work-study is another line item that often causes confusion.

While it appears in financial aid packages, work-study does not reduce your bill. Instead, it gives your student the opportunity to:

  • Apply for a qualifying on-campus job

  • Earn wages through a paycheck over the semester

Important things to know:

  • Jobs are not guaranteed

  • Earnings depend on hours worked

  • Money is paid to the student, not credited to the account

  • Funds can easily turn into everyday spending if not managed intentionally

Work-study can be valuable—especially for jobs that allow studying during downtime—but families shouldn’t count it as money already applied to tuition.

Why Cost of Attendance Matters More Than the “Net Price”

Another critical piece of the award letter is the Cost of Attendance (COA).

This should include:

  • Tuition and fees

  • Room and board

  • Books and supplies

  • Transportation and personal expenses

Some schools only show partial costs or outdated estimates, which makes the offer look more affordable than it really is. Always verify that the COA is:

  • Complete

  • Current

  • Realistic for your student’s situation

If the cost side of the equation is wrong, the entire comparison falls apart.

Think Beyond Freshman Year

College is a four-year financial commitment, not a one-year purchase.

Families should consider:

  • Whether need-based aid is unusually high (or low) this year

  • Upcoming changes in household income

  • Siblings entering or leaving college

  • Whether merit scholarships are renewable—and under what conditions

A strong freshman-year offer doesn’t always translate into long-term affordability. Understanding this early can prevent painful surprises later.

The Big Takeaway

Financial aid award letters are confusing by design—but they don’t have to derail your decision-making.

Before committing to a school:

  1. Make sure you’re reviewing the final financial aid offer

  2. Separate free money from loans and work-study

  3. Understand what’s guaranteed versus reassessed annually

  4. Evaluate affordability over all four years, not just one

Once you understand the offer, then it’s time to explore your next step: appealing for more aid. And yes—appeals are possible, even for merit scholarships.

financial aid award letters explained

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