Financial aid letters are not standardized. Every school formats them differently, uses different terminology, and presents the numbers in a different order. Some schools are straightforward. Others bury the most important information or present the package in a way that makes it look more generous than it is. Reading them carefully and skeptically is key. A typical financial aid letter includes some combination of the following:

Grants and Scholarships
Grants and scholarships are money you do not have to repay. This is the good stuff. Grants are usually need-based and come from the federal government, the state, or the institution itself. Scholarships can be need-based or merit-based. The critical question for every grant and scholarship in the letter is whether it is renewable. Many merit scholarships require you to maintain a minimum GPA each year. Some institutional grants are only guaranteed for the first year and may be reduced or eliminated if your financial situation changes. If the letter does not specify, call the financial aid office and ask directly.

Loans

Federal student loans are money the student borrows and repays with interest after graduation. They are included in almost every financial aid package, but they are not aid. They are debt. Many letters present loans alongside grants in a way that makes the total package look larger than it actually is.

Federal student loans also have annual limits that depend on factors like year in school and dependency status. For dependent undergraduates, the current limits are c$5,500 in year one, $6,500 in year two, and $7,500 in years three and four. The key point is that there is a maximum amount a student can borrow. If the gap between grants and the total bill is larger than those amounts (which it often is!), the student cannot simply borrow more. The remaining gap has to be covered in some other way. That is where Parent PLUS Loans and private loans come in.

Parent PLUS Loans are federal loans taken out by parents to cover costs that grants, scholarships, and student loans do not. They are the parents’ debt, not the student’s, and they often carry a higher interest rate than federal student loans. Repayment typically begins immediately after the loan is disbursed unless the parent requests a deferment. Some financial aid letters include a Parent PLUS Loan as part of the package without making it obvious that this is a separate loan the parent is being asked to take on. Read carefully.

Private loans are another option when federal aid falls short. These are issued by banks and lenders, usually require a creditworthy co-signer (typically a parent), and carry interest rates and terms that vary widely. Unlike federal loans, private loans have no income-based repayment options and limited protections if circumstances change. They should generally be a last resort.

Take Away
When you see the total package, separate it into three buckets. Each bucket tells a different part of the affordability story.

🧩 Money you do not have to repay (grants and scholarships) 

🧩 Money you will owe (federal student loans)

🧩 And money the parent is being asked to take on (Parent PLUS or private loans) 

One of the most common and costly mistakes families make is evaluating a financial aid offer based on year one only. A school that looks affordable in freshman year can look very different by sophomore year if the math changes.

Non-renewable scholarships are the most common cause of that shift. A school might offer a $10,000 merit scholarship to attract you, with fine print that limits it to the first year only. You enroll based on that offer, and in year two, the scholarship disappears. Your cost of attendance just increased by $10,000, and you are already there.

Even renewable scholarships can have conditions attached. Some require a minimum GPA that is higher than it sounds in practice. A 3.0 renewal requirement might seem easy, but for a student adjusting to a rigorous academic environment, it is not guaranteed. If the scholarship is lost, it rarely comes back.

Tuition also tends to increase each year. A school that commits to a specific cost of attendance for year one is not necessarily committing to the same number in year three. Small annual increases compound across four years and can add up to thousands of dollars more than the original estimate.

The point is to look at all four years before you decide, not just the first one. A school that is a financial stretch in year one may become unmanageable by year three. A school that looks more expensive upfront but has a strong renewable aid package may actually cost less over four years. You cannot know which is which until you run the numbers all the way through.

Scholarships are often treated as a single category, but where a scholarship comes from and whether it renews can make a major difference in long-term affordability. Institutional scholarships come from the college and show up on the financial aid letter. 

Outside scholarships are awarded by organizations outside the college, such as private foundations, employers, or community groups. Students apply for these separately, and many are one-time awards rather than renewable funding. Outside scholarships can help close short-term gaps, but families should be cautious about relying on them to make a school affordable over four years. Renewable awards affect whether a school remains affordable long-term. 

The key question is not just how much scholarship money you receive, but how long it actually lasts. If you want a deeper look at the potential tax implications of scholarships, read “The Hidden Cost of Scholarships” where we outlined potential tax implications.

Before you commit to a college, try to answer three key questions. 

❓ How much of the offer is money you do not have to repay, and how much is debt? 

❓ What changes in year two, including scholarships that may not renew, and expected annual cost increases. 

❓ What your family would actually have to pay out of pocket each year, and whether that plan still works if a scholarship disappears or costs rise faster than expected.

If those answers are unclear, you are not alone. Many families struggle to compare multiple school offers and fully understand which ones are truly affordable. That is exactly why I developed the College Net Price & Budget Planner, a tool that does the math for you and puts the full financial picture in one place.

The College Net Price & Budget Planner is available in my Etsy shop for just $5.99. Mission: Accepted! website visitors receive 30% off using this link. Or use the discount code MISSIONACCEPTED during checkout.

Do you have questions about how to read your financial aid letter or how to use the planner? Reach out. This is exactly what I help families navigate.