Making Sense of Financial Aid Award Letters

BIG Ideas:

• Financial aid award letters explain the types and amounts of financial aid a college is offering to help cover your cost of attendance.
• Award letters typically arrive after you’ve been accepted to a school and submitted your FAFSA, often in early spring for the upcoming academic year.
• Every school’s financial aid letter is different, so knowing how to review multiple offers and comparing them carefully is key.

A crucial step in the college journey is completing the Free Application for Federal Student Aid (FAFSA). Colleges use the FAFSA to decide what types and how much financial aid you qualify for.

Once your FAFSA is processed, each school that you’re accepted to and any schools you listed on your application will send you a financial aid award letter. Financial aid award letters are important because they help you understand how much college will cost and what aid is available to you to help pay for it.

Unfortunately, each school’s financial aid letter can look different, and there’s no standard format, which can make them difficult to understand and compare. But don’t worry! We’ve put together this guide to break down financial aid award letters and make them easier to navigate and understand.

What Does It Mean?

Although amounts and formats may vary from school to school, most financial aid award letters include common items such as scholarships and grants, federal loans you’re eligible for and an estimated cost of attendance. Below is an overview of what you can typically expect to see and what each item means:

1. Cost of Attendance (COA): The Cost of Attendance (COA) is the school’s estimate of what it will cost you to attend school for one academic year. This can vary from school to school but usually includes expected expenses for a full-time student like tuition and fees, room and board and books and supplies.
2. Student Aid Index (SAI): The Student Aid Index (SAI) is a number ranging from -1,500 to 999,999 used by schools to determine how much financial support you need. It is calculated using information provided on your FAFSA application and will not vary from school to school. In general, the lower your SAI, the more financial aid you will be eligible for, and vice versa.
3. Financial Need: On a financial aid award letter, financial need is the difference between the Cost of Attendance (COA) and your Student Aid Index (SAI), which shows the amount of financial aid the school estimates you may qualify for.
4. Free Money: Scholarships and grants are often referred to as “free-money” for college since you generally don’t have to pay them back. These awards help reduce the cost of college and are usually based on financial need, academic achievement or other criteria. Usually:
   • Scholarships are awarded based on need, merit or specific interest and may come from schools, companies, non-profits or private organizations.
   • Grants are need-based financial aid awards from schools, states or the federal government.

Be sure to review the terms and conditions of any grant or scholarship you accept to confirm if any additional steps or applications are needed, and to understand what requirements you must meet to keep the award.

5. Work-Study: Federal Work-Study is a need-based program that offers eligible students job opportunities to help pay for their education and living expenses. Keep in mind that the amount listed on your financial aid award letter is an estimate and the actual amount will depend on securing a job and the hours and type of work you do.
6. Federal Loans: These are loans provided by the federal government to help cover your Cost of Attendance (COA), and they must be repaid with interest. Your financial aid award letter may outline which types of federal loans you’re eligible for. Understanding the differences between the federal loan types offered in your letter is important because it can affect how much you or your family will pay overtime. Interest rates and fees, and how interest accrues, vary between loan types. Here’s what you need to know about the federal loan types you may see on your financial aid award letter:
   • Direct Loans:
     • Direct Subsidized Loans: These loans are available to undergraduate students with financial need. With these loans, the government pays the interest while you’re enrolled in school at least half-time, during your grace period and during deferment, which can save you money.
     • Direct Unsubsidized Loans: These loans are available to undergraduate and graduate students. Interest on these loans starts accruing as soon as the loan is disbursed, even while you’re in school, which increases the total amount you’ll pay over the life of your loan.
       

       For the 2025-2026 academic year, the interest rates on Direct Subsidized and Unsubsidized loans ranged from 6.39% to 7.94%, along with a 1.057% fee. To learn more about these loans, including eligibility and borrowing limits, click here.

   • Direct PLUS Loans: Your financial aid award letter may also include Direct PLUS Loans, like a Direct Parent PLUS Loan. These loans carry higher interest rates and fees. Direct PLUS Loans disbursed on or after July 1, 2025, and before July 1, 2026, carry an 8.94% interest rate with a 4.228% fee.

Also, beginning July 1, 2026, new borrowers of Parent PLUS Loans may be subject to borrowing caps of $20,000 per year and $65,000 aggregate limit per child which can make covering the costs of college more challenging.

Please note that the award letter will not list loan terms, such as interest rates, repayment options or forgiveness eligibility. Before you accept any federal loans, you’re encouraged to visit the Federal Student Aid website to learn more about the loans offered in your award letter.

7. Private Loans: Some schools may choose to include private loans in your financial aid award letter. These credit-based, interest-bearing loans are offered by private lenders and non-profits, like Brazos, to help cover your Cost of Attendance (COA) after other financial aid is applied.
   
   If your school didn’t include a private loan in your award letter, it doesn’t mean they’re unavailable if you need more money to cover the costs of college. Research private lenders and compare what they have to offer. In fact, borrowers with strong credit scores may find that private student or parent loans can offer lower interest rates and favorable repayment options.
   
   Similar to federal loans, the terms of any private loans listed won’t appear in your award letter. It’s important to visit the lender’s website to see the full terms and conditions before accepting any loans.

Making Sense of It All: Key Takeaways

Understanding financial aid award letters can be overwhelming but breaking them down can help you make the best decisions for your education and budget. Here are some additional things to keep in mind:

• Compare Offers: If you’ve been accepted to more than one school, carefully review each financial aid award letter to see which school is offering the best package.

• No Obligation: You’re not obligated to accept any of the aid listed in your award letter.

• Additional Applications: Some aid, like scholarships, grants, or work-study, may require additional applications.

• Prioritize Free-Money First: Grants, scholarships, and work-study programs don’t generally need to be repaid, so make the most of these options before turning to student loans. You should also search for additional scholarship opportunities outside of your award letter to further reduce the amount you need to borrow.

• Know What You Need to Cover: Subtract scholarships, grants and work-study opportunities from your Cost of Attendance (COA). The remaining balance is what you’ll need to pay out-of-pocket or cover with federal or private student loans.

• Private Loans Aren’t Always Listed: If your award letter doesn’t show private student loans, don’t worry. Many private lenders, like Brazos, have options to help cover any remaining costs.

• Start With Federal Loans: If you need to borrow money to pay for school, start with federal student loans since they offer benefits like income-driven repayment plans and public service loan forgiveness.

• Understand Federal Loan Differences: The federal loans listed in your award letter can vary in interest rates, fees and how interest accrues, which affects the total amount you’ll repay over time.

• Accept Your Aid: Once you’ve decided on a school, accept your financial aid. Remember, you don’t have to accept every award, but any aid you decline will need to be covered by other means.

Why Brazos?

Why Brazos? We are one of the best kept secrets in Texas! Our companies, together, have been helping students and parents finance their college education since 1975, and are the largest nonprofit student loan group in the country! Helping make college affordable has been our mission for over 50 years! Go to About Us to learn more.