Top 10 Mistakes Students Make When Comparing Financial Aid Offers

For traditional college students, late March and early April is a highly anticipated time. Students eagerly await word about which colleges have accepted them. While filled with excitement, it can also be a stressful time as families finally hear what they will have to pay as they receive their financial aid award letters.

It’s bad enough that colleges and universities feel that it’s OK to not let students know how much it will cost them to go to their school until a month before they need to make their final decision, but to top it off most families find it challenging to even understand their offers and make comparisons.

This article will outline some of the biggest mistakes students and parents make when analyzing financial aid offers.

1. Comparing Apples to Oranges

It is easy for a student to focus in on the immediate out of pocket cost and ignore loans. Some financial aid award letters actively try to down-play the amount of loans they are offering in order to make their award more appealing.

Most students will focus in on out-of-pocket costs and assume they will easily pay back loans later. But comparing an offer full of grants and scholarships to one filled with loans is like comparing apples and oranges.

With each school potentially using a different award letter format, and even sometimes different terms, students need a common way to compare offers side by side.

2. Underestimating the Impact of Loan Interest

Ignoring an offer loaded with loans is one thing, but many students have no real concept of the power of compound interest and how much it can inflate the real total cost of a degree. I know I sure didn’t when I took out my loans.

With many different loans sometimes added to an offer, each with different terms, understanding this true total cost can be difficult. 

Students need a way to easily see the impact that interest will have. They need to be able to see not just the total amount they will likely pay, but what that breaks down to on a month to month basis and what type of impact that will have on their life.

3. Ignoring Their Ability to Pay Back Loans

While student loans are not ideal, they do offer a path for many students to successfully invest in an education. As long as students have a good understanding of the amount they are taking on, and how they will pay it off, loans are manageable.

This is very rarely the case, as loans are offered to students willy-nilly with few loan officers taking the time to explain to students what they are getting into. The amount of debt a student takes on should be proportional to the ability they will have to pay it off when they graduate. Should a student majoring in fine arts or philosophy really be taking on as much debt as the student pursuing engineering, computer science or pre-med? Probably not.

I am a firm believer in students pursuing their passions. Doing so is what will lead to true success in life. The expected salary a student will earn should be a small part in choosing that path.

However, that expected salary should most definitely play a large role in determining how much debt to incur to obtain a degree. Students who take on debt they cannot pay back either default or are forced to take a job they don't love in order to manage their loan payments.

4. Not Considering Rising Costs

Most families do not consider the fact that tuition and fees go up every year, most of the time rising faster than inflation. Even if they are aware, they can rarely come up with a calculation that helps them truly understand the total cost of their degree.  

The truth is that a typical college will raise tuition and fees by 4-6% every year. Costs for a student’s senior year can easily be 30% more than their first year. Students need to understand this and factor it in when selecting their best offer.

5. Assuming They Will Receive the Same Offer Sophomore Year

Many scholarships are dependent on the student maintaining a specific GPA, and some scholarships are only available for freshman students.

Even if a student is an all-star in highs school, college classes are often tougher meaning GPA’s may slip. And if that is the case the scholarship a student was depending on for all four years may not be there for them when they return to school their second, third or fourth year.

6. Assuming They Will Graduate in 4 Years

Most families’ budget for college assumes students will graduate in four years, but this is rarely the case. You would excuse them for thinking this way however, because most financial aid packages are also designed for four years. Stay an extra semester or year, and your financial aid situation may change.

A delay in graduation not only means less financial aid, and more out-of-pocket for tuition, but it also means a delay in starting a career and earning a salary. It is actually quite costly to spend extra time in school when looking at all of these factors.

7. Focusing on the Amount of Aid Rather Than Net Price

Students and parents often get very excited by a large scholarship. Colleges know this is the case, which is why their “sticker” price is often very high. It allows them to offer generous discounts to persuade students into thinking they are getting a great deal.

But if the school is very expensive to begin with, a large scholarship may still not make it affordable for that family.

Families should focus on net price and the relative value the school will provide. There are plenty of quality schools that use a fair pricing model. It may not look as if you are getting as big of a discount, but this could very well be the perfect place for this particular student.

8. Valuing Brand Over Fit                                            

Often a student’s top college choices are driven largely by emotion or the expectations of others (including their college advisors!).

A well ranked school can be a powerful factor stoking a students’ ego or need for acceptance. Upon receiving their financial aid packages, many students will simply choose the best ranked school they think they can afford (or simply choose the best-ranked school no matter if they think they can afford it or not).

An objective analysis at this point could be very beneficial to students and parents who are worn out with considering their options.

What they really need is a “best college for the money ranking” that is customized for their specific needs! Instead of a “one-size-fits-all” ranking, students need a “best MATCH for the money” calculation.

9. Not Comparing Their Offer to Others Like Theirs

Purchasing higher education is a little bit like buying an airplane ticket. Everyone has paid a different price to be there. Like airlines, colleges and universities practice price discrimination, where the wealthiest students pay higher amounts in order to subsidize costs for students who are unable to pay.

Colleges want students to pay the highest price they can and still be able to afford to graduate. Students want to pay the lowest price they can. What should happen is students and schools agree on a middle ground where they both feel comfortable.

That is not what really happens though. The higher education marketplace is often shrouded in darkness with institutions having more than their fair share of the power.

Families receive an offer, and are often so excited just to be accepted they will pay whatever it costs! They have no way of knowing if the offer they have received is fair or typical. And the vast majority do not realize they do not have to accept the offer as is.

At the very least, families should take advantage of tools that will not only show them the average aid the particular college awards to students, but will go further to show them average aid packages awarded to families like them in similar income brackets and students with similar credentials.

10. Not Appealing Their Offer

Few people are naturally inclined to haggle over prices. And even individuals who would not bat an eye in negotiating the price of a car don’t realize you can use the same principles to appeal a financial aid offer.

This process can be overwhelming and intimidating. But there is a way to go about it that maximizes the time spent to produce the best results.

This includes:

  • Focusing time on schools where you are most likely to get results.
  • Making a compelling argument based on the facts.
  • Being able to make schools compete by comparing offers between schools.

When haggling the price of a car, customers benefit by a wealth of information and online tools that show them how much the car is worth not just on average, but how much the car is worth based on the year, zip code and other factors. This gives many customers the confidence needed to succeed in negotiation even if they are not naturally inclined to do so.

Many do not do the same with financial aid offers because they are in the dark about what is possible. As soon as they have their hands on the relevant information they need, they will feel confident to proceed.

A Better Way

At College Factual we have been working hard to find ways to empower students and parents to make confident decisions about higher education.

We have taken that learning, combined it with our in-depth data analysis and matching technologies to create a new and improved tool we call Cost Cutter.

Cost Cutter Offer Analysis

Our Cost Cutter Offer Analysis tool helps students address 8 of the 10 mistakes noted above. This free and easy to use tool allows a student to enter the offers they have received and get answers to the following questions:

  • What is my real net price?
  • What will my total cost of the degree be (including loan interest)?
  • How high is my risk of hidden costs at the school?
  • Does the offer result in a good value for the money?
  • Is the offer competitive with other offers the school gave?

Cost Cutter Deal Assessment

For $99 families can purchase a much deeper analysis of their offers. This analysis goes deeper into each of the above in a much more personalized way and allows for deep comparisons of their offer to each other. This fully customized report will help a student to understand which college has truly given them the best offer.

In particular, it helps to answer the following questions:

  • Which of my offers gives me the best value for the money?
  • Which of my offers gives me the best match for the money?
  • Is the offer at each school a good deal based on how competitive of a candidate I am?
  • How strong is my bargaining position to appeal the offer at each school?
  • What specific points should I use to appeal my offer at each school?

Additionally, the report includes tips on appealing an offer over the phone, as well as an automatically generated appeals letter for each school that makes a customized case for that particular school as to why they should award you more aid.

Click the button to learn more and sign up to try for free!