Financial aid award letters, explained like you're 5
Every part of an award letter in plain words: what is free money, what is earned and what is borrowed, how to find the real net cost, and how to look a school up on College Scorecard. It names no school and never says which offer to accept.
Explain it like I'm 5
An award letter is a school's offer to help pay for school. Some help is gift money you generally keep, while some is earned through work and some is borrowed. Borrowed money must be repaid with interest. Sort every line by type before comparing two offers, like sorting items into separate piles.
This explains. It does not advise.
Where all four AIs agree is the solid ground. Where they disagree is exactly what to ask each school's financial aid office. This guide names no school and never says which offer to accept or whether to borrow.
Got two award letters? Compare them.
Attach each school's award letter as a PDF or photo (photos are limited to three). ChatGPT, Claude, Gemini and Grok sort every line into free money, earned money and borrowed money, work out the net cost from grants and scholarships only, and write questions for each financial aid office. Cover your name, street address and student ID number first, and turn on Private mode to keep the chat out of your history.
Compare my award lettersFree account: 3 questions, no card.
Every part of an award letter
Not good versus bad: what each part is, what to check on your letter and what can mislead.
Grants and scholarships
Grants and scholarships are money that generally does not have to be repaid. They may come from the federal government, your state, the school, or outside groups. A grant or scholarship can have conditions and may not renew each year.
What to check
- Check the name, source, and amount of each grant or scholarship.
- Check conditions for keeping each award.
- Check whether the letter says the award can renew.
What can mislead
- A total labeled aid can include loans, not just gift money.
- A grant may not renew or may change if conditions are not met.
- An award for this year does not prove the same award will continue.
Work-study
Work-study is a job a student may use to earn money over the school year. The money is earned as the student works and is paid through wages.
What to check
- Check that work-study is listed separately from grants and loans.
- Check how students find jobs and receive wages.
- Check whether the listed amount is the most the student may earn.
What can mislead
- Work-study is earned over the year, not given upfront.
- The student may not earn the full listed amount.
Federal student loans
Federal student loans are borrowed money the student repays with interest. The letter may list a Direct Subsidized Loan and a Direct Unsubsidized Loan. With a subsidized loan, the government pays interest during certain qualifying periods; with an unsubsidized loan, interest generally builds while the student is in school.
What to check
- Check each loan's full name.
- Check whether each loan is subsidized or unsubsidized.
- Check that the student is the borrower.
What can mislead
- An offered loan is borrowed money, not free aid.
- A total aid figure may include loans.
- Unsubsidized interest can build while the student attends school.
Parent PLUS and private loans
A Parent PLUS loan is a Direct PLUS Loan borrowed by a parent for a dependent student. A private loan comes from a bank or other lender. The person named as borrower owes the debt, so a loan in a parent's name is the parent's debt.
What to check
- Check whose name is listed as borrower.
- Check whether a Parent PLUS or private loan is included.
- Check whether a private loan needs a separate application or approval.
What can mislead
- A loan in a parent's name is the parent's debt.
- Parent and private loans are not gift money.
- A suggested loan may not be approved.
Cost of attendance and net price
Cost of attendance is the school's estimate of a year's total school and living costs. A letter can leave off costs that matter to you, such as travel or personal needs. Net price is cost of attendance minus grants and scholarships only, never minus loans.
What to check
- Compare each school's full cost of attendance estimate.
- Check which indirect costs the letter leaves off.
- Subtract grants and scholarships only when finding net price.
What can mislead
- The letter may leave out travel, personal costs, or other expenses.
- Subtracting loans makes the cost look lower than it is.
- Schools may include different costs in their estimates.
Using College Scorecard
College Scorecard shows net price, typical debt, completion, and earnings figures. These are averages for past students, not a prediction for you. Look up each school on College Scorecard and use each school's own net price calculator for a personal estimate.
What to check
- Look up both schools on College Scorecard.
- Compare net price, typical debt, completion, and earnings figures.
- Use each school's own net price calculator.
What can mislead
- Past-student averages may not match your results.
- Typical debt may not show every kind of family borrowing.
- A net price calculator is an estimate, not your award letter.
Rules to know
- Federal grants and repayment
- Most types of federal grants, unlike loans, generally do not have to be repaid. Certain scenarios can require a portion or all of a grant to be repaid, for example if you withdraw from school before finishing an enrollment period such as a semester, or if you receive a TEACH Grant and do not complete your service obligation. The requirements for staying eligible vary from grant program to program.
- Grants | Federal Student Aidchecked November 3, 2026
- Federal loan rates, first disbursed July 1, 2026 to before July 1, 2027
- Direct Subsidized and Direct Unsubsidized Loans for undergraduates: 6.52% fixed. Direct Unsubsidized Loans for graduate or professional students: 8.07% fixed. Direct PLUS Loans for parents and for graduate or professional students: 9.07% fixed. A fixed rate does not change for the life of the loan, and a loan first disbursed before July 1, 2026 likely has a different rate. Most federal student loans also have a loan fee taken out of each disbursement: 1.057% on Direct Subsidized and Unsubsidized Loans and 4.228% on Direct PLUS Loans, first disbursed on or after October 1, 2020 and before October 1, 2027.
- Federal Interest Rates and Fees | Federal Student Aidchecked November 3, 2026
- Who pays the interest: subsidized or unsubsidized
- The U.S. Department of Education pays the interest on a Direct Subsidized Loan while you are in school at least half-time, for the first six months after you leave school and during a period of deferment. You are responsible for the interest on a Direct Unsubsidized Loan during all periods; while you are not required to make payments, such as in school, that interest accrues. Direct Subsidized Loans are available only to undergraduates with financial need.
- Subsidized and Unsubsidized Loans | Federal Student Aidchecked November 3, 2026
- Parent PLUS loans, first disbursed July 1, 2026 to before July 1, 2027
- A Direct PLUS Loan made to a parent is a parent PLUS loan, and the parent repays it to the loan servicer. For this window the page gives a 9.07% fixed rate, and a loan fee of 4.228% for loans first disbursed on or after October 1, 2020. A credit check is performed when you apply. A parent who does not qualify for the page's limited exception (for a student who was already enrolled in the same program and had borrowed before July 1, 2026) can borrow at most $20,000 a year for each dependent student, all parents together, for academic years beginning on or after July 1, 2026, and $65,000 per child over undergraduate study. A parent who does qualify can borrow up to the cost of attendance minus other aid.
- Parent PLUS Loans | Federal Student Aidchecked November 3, 2026
- Federal Work-Study
- The Federal Work-Study Program lets you earn money to pay for school by working part-time, at least the current federal minimum wage. Your total work-study award depends on when you apply, your level of financial need and your school's funding level.
- Types of Financial Aid | Federal Student Aidchecked November 3, 2026
- What College Scorecard's net price is
- College Scorecard's average annual cost is the average net price, for one academic year, for students who receive federal financial aid. Net price adds the advertised price for tuition, fees, books, supplies and average living costs and subtracts the average grant and scholarship aid. It is averaged over full-time, first-time students who receive federal financial aid and may not reflect a specific student's annual costs. For public schools it counts only in-state students. The glossary lists this figure for the 2023-24 award year.
- Glossary | College Scorecardchecked November 3, 2026
- Net price calculators
- The Department of Education says net price is what a student pays to attend in a single academic year after subtracting the scholarships and grants they receive, which they do not have to pay back. Net price calculators are on a college's or university's website: you enter information about yourself to see what students like you paid the previous year, after grants and scholarship aid.
- Net Price Calculator Center | U.S. Department of Educationchecked November 3, 2026
How to compare two award letters, step by step
- Sort every line into free money, earned money, and borrowed money.
- Compare each school's cost of attendance and what the letter leaves off.
- Work out the net cost from grants and scholarships only.
- See what would be borrowed and by whom.
- Check whether grants renew and on what conditions.
- Look both schools up on College Scorecard and use each school's net price calculator.
Common mistakes
- Treating total aid as free money hides loans that must be repaid.
- Counting work-study as a bill credit creates a gap before wages are earned.
- Subtracting loans when finding net price makes the real cost look smaller.
- Assuming a grant renews without checking conditions can create later costs.
- Comparing tuition alone misses living and other costs the letter may leave off.
Questions to ask each financial aid office
Ask each school's financial aid office.
- Which lines are grants, scholarships, work-study, and loans?
- Which grants or scholarships renew, and what conditions apply?
- Which costs are left out of this cost of attendance estimate?
- How is work-study paid, and does it reduce my bill?
- Who is the borrower for each loan listed?
- What could change this offer, and whom should I contact?
Official help:
How sure is this guide?
Where the four AIs disagreed
ChatGPT, Claude, Gemini and Grok each researched financial aid award letters on their own, with web search. The score is how closely their answers matched. Where they split, ask each school's financial aid office before you trust either side.
82/ 100Strong agreement
Grant conditions
- Gemini 3.8 Flash: Says breaking conditions can turn grant money into debt.
- GPT-5.6 Terra: Says grants may have conditions or fail to renew, without claiming conversion to debt.
- Claude Sonnet 5.5: Says unmet conditions may shrink or end the grant.
- Grok 4.5: Says unmet conditions can mean repayment.
Sources
The AIs searched the web and used these. AI can get details wrong, so the dated numbers above are copied by hand from the official source beside each, and your own documents, your state's law and the people who issued them are the final word.