Comparing Financial Aid Offers

Packages offered by schools aren't always easy to assess. Here are some ground rules for what's most valuable

by Alina Dizik

You've been accepted by a bunch of good colleges, and the financial aid offers from the schools are flowing in. How do you compare them?

It's not necessarily easy—especially if this is your first exposure to the college years. Experts warn that it's common to get confused about which combinations of loans, scholarships, grants, or work-study are best. "We're seeing a sustained high level of confusion, because there are always new entrants who are suddenly faced with vocabulary they never learned when studying for the SAT," says Robert Shireman, director of the Project on Student Debt.

But what it really comes down to is this: Which type of aid is most beneficial towards financing a college education? The simple answer, the experts say, is to look at the components in descending order of value: first scholarships and grants, then work-study or government loans. Private loans should be at the end of the list.

Naturally, though, nothing is really simple. Here are explanations of how each of different category measures up.

Scholarships

Experts point out that while most schools automatically consider students for merit or need-based aid, it's important for incoming students to search for additional scholarships on their own because that's the type of aid that does not require repayment. But when comparing scholarships, not all are created equal. It's important to learn about any requirements for maintaining the funding beyond the first year and to choose scholarships that aren't tied to specific majors, says Mark Kantrowitz, publisher of FinAid.org.

For example, this year's new TEACH (Teacher Education Assistance for College and Higher Education) Grant Program promises to give students a $4,000 annual grant in order to encourage them to pursue teaching (and continue in the profession for four years). However, if the requirements (among them a 3.25 GPA) are not met the grant is converted into a loan, explains Kantrowitz. He also warns that if a scholarship is not used to properly fund tuition and fees it can become taxable income. That said, no matter how much time is spent applying, most students with financial need cannot attend college on scholarships alone. "A lot of people think it's easy to win a completely free ride to college," says Kantrowitz. "But winning scholarships is a part of paying for college—it's not an entire solution."

To help lessen the loans for upcoming years, applying for scholarships should be done annually. And if a student does receive additional scholarship money, many schools decrease loan amounts before touching grant money when it comes to calculating the next financial award letter. But besides extra cash, winning a prestigious award based on merit or a previous experience can also help the student gain recognition. "You get a line on your resume, and that can open doors," says Kantrowitz, who stresses that a scholarship or grant is the preferred form of financial aid.

Work-Study

While typical federal work study only covers a small amount of college tuition, proponents say it's well worth it. For example, at George Washington University, where annual tuition is $39,210, students are able to earn $2,200 to $2,500 a year by working 8 to 10 hours a week, says financial aid chief Daniel Small. Unlike another part-time job, the money does not count as income when calculating the student's next annual financial aid package. But taking a previously approved job on campus—especially one that's related to the student's career interests—has nonmonetary benefits too. "It helps the student connect to the university right away. They'll also have a supervisor to help them navigate the system in that first year," explains Small.