Required Elements of Award Letters

This page is based on an article previously published by the Council on Law in Higher Education: Mark Kantrowitz, Recommended Elements of Award Letters, Emerging Issues in Higher Education, CLHE, March 2005. It has been updated to reflect subsequent statutory and regulatory changes. See also Guide to Financial Aid Award Letters.

Introduction

Financial aid offices use the award letter to provide students and their families with information about the composition of the financial aid package, the cost of attendance, and the institution's financial aid policies and procedures.

Financial aid administrators often wonder what information must be included in the award letter. They search the Federal Student Aid Handbook looking for any requirements published by the U.S. Department of Education, to no avail. There are no regulatory requirements for the content of an award letter because there is no regulatory requirement to have an award letter. There has been no such requirement since February 3, 1988, when schools were last required to obtain a signed award letter from the student indicating the student's acceptance of campus-based awards.

Thus there is no requirement that schools send award letters to their students, no requirement that the schools maintain a signed copy of the award letter in their file, and no required elements of the award letter.

Nevertheless, most schools still send award letters to new and returning students because it is an effective tool for providing families with information about the financial aid package and the costs associated with their children's education. In addition, many schools use the award letter to satisfy other regulatory requirements.

This article discusses some of the more common best practices adopted by financial aid administrators concerning the content of the award letter.

Other Regulatory Requirements

There are several information dissemination regulations that can be satisfied using the award letter. These include:

Notice of Amounts and Types of Title IV Aid

34 CFR 668.165(a)(1) requires schools to notify students about the amount of Title IV aid the student and his or her parents will receive from each Title IV program before any aid is disbursed. The school also must provide information about the disbursement method and schedule, and itemize subsidized and unsubsidized education loans separately.

Notice of Right to Cancel a Loan

34 CFR 668.165(a)(2) requires schools to notify students and parents of their right to cancel all or a portion of an education loan disbursement and have the funds returned to the lender. This notice must be sent within 30 days before or after the school credits the student's account with the loan proceeds. Although the timing may permit the inclusion of this information with the award letter, it is better to have this notice accompany the promissory note or each disbursement.

Student Account Authorization

34 CFR 668.164(d) requires schools to obtain authorization from the student and/or parents to use Title IV funds for any purpose other than current charges for tuition and fees (and, if the student has signed a contract, for room and board). This includes depositing the funds to a bank account designated by the student or parent and applying the funds to pay for other authorized educationally-related charges. Such an authorization cannot be mandatory. The student or parent must be able to cancel or modify the authorization at any time. Additional requirements relating to the authorization are described in 34 CFR 668.165(b).

Financial Assistance Information

34 CFR 668.42(a) and (b) and Section 485(a) of the Higher Education Act require schools to provide current and prospective students with information about available federal, state, local, private and institutional student aid programs. 34 CFR 668.42(c) requires schools to provide students with information about the rights and responsibilities of students receiving financial aid. In particular, it requires disclosure of the criteria for continued eligibility for each program in the financial aid package and especially the school's Satisfactory Academic Progress (SAP) policy. It also requires the school to provide students with information about the terms and conditions of their student aid, including disbursement methods and frequency, the terms of education loans, and the terms of any work-study job. Section 485(e) of the Higher Education Act also requires certain disclosures regarding athletic scholarships, grants and other forms of athletic aid offered by the school. Although most schools handle these requirements through a financial aid section of the college catalog, many will include basic information about the school's SAP policy and requirements for continued eligibility with the award letter.

Institutional Information

34 CFR 668.43 requires schools to make available to students certain information about the school, including cost of attendance information (including tuition and fees, books and supplies, room and board, and transportation) and the school's refund policy. The school must also provide a statement concerning the impact of study abroad on eligibility for Title IV student aid (i.e., if a program is approved for credit by the home institution, it counts as part of their enrollment at that school for Federal student aid purposes). Although this information only needs to be made available upon request, many schools find it helpful to include cost of attendance information in the award letter.

State Grant Assistance

Section 487(a)(9) of the Higher Education Act requires schools to notify borrowers about their eligibility for state grant assistance from the state in which the school is located (and contact information for further information about other states for students from other states).

Best Practices

Many financial aid administrators include the following information as part of the award letter. This information helps families understand how much they will have to pay and their rights and responsibilities.

The amount of institutional aid, in addition to Title IV and state aid

The cost of attendance, EFC, financial need and unmet need

The school's outside scholarship policy

The school's SAP policy

Availability of unsubsidized Stafford and PLUS loans

Availability of tuition installment plans

Notice of the right to request a professional judgment review of unusual circumstances that may affect the family's ability to pay

Most schools will send a revised award letter whenever the student's EFC or cost of attendance changes. Some schools will only send a revised award letter when the amount of financial aid or the composition of the financial aid package changes.

SAP Policy

Since many students will not read the full SAP policy, it is important to provide them with a short summary that emphasizes the consequences of failing to maintain satisfactory academic progress.

FERPA

Some schools will include a FERPA waiver form with the award letter that the student can use to consent to the release of their names and award amounts (and perhaps GPA) to the award donors. They may also use the award letter to satisfy other FERPA requirements, such as the annual notice of FERPA rights.

Packaging PLUS and Unsubsidized Stafford Loans

Because there is a growing tendency of families to overlook unsubsidized Stafford and PLUS loans in favor of the more expensive private education loans, it is important to ensure that the families are aware that these sources of education financing are available. However, packaging these optional loans by listing a specific amount on the award letter may lead to confusion and over-borrowing. When schools tell families about their maximum PLUS loan eligibility, they have a greater tendency to borrow the maximum instead of a lesser amount. It is important to emphasize that these loans are available to help the family finance the family contribution and to explain that the Stafford Loan is less expensive than the PLUS loan which is less expensive than most private education loans.

Cost of Attendance, EFC and Financial Need

Since cost-of-attendance information is only required upon request, there is some debate about whether it is worth including it on the award letter. Likewise, since schools are not required to tell families their EFC, financial need, and unmet need, some schools choose to exclude it from the award letter.

The main argument against including cost-of-attendance information in the award letter is that it may confuse some families. This can include confusion about the family's out-of-pocket expense, confusion about which amounts get paid to the school, confusion about whether the amounts are actual figures or estimates, and confusion when comparing costs. There is, however, less confusion if the award letter itemizes the major components of the cost of attendance that apply to the student, such as tuition and fees, room and board, and transportation, in addition to giving the overall total.

Some schools do not include cost-of-attendance information on the award letter because it makes it apparent that the school is not meeting the full demonstrated financial need (i.e., the school is gapping the student). Instead, they substitute a worksheet the family can use to figure it out on their own.

However, the purpose of the award letter is to provide the family with clear and understandable information about the costs they will incur by attending the institution. If some students find the information confusing, it is a sign that the clarity needs to be improved, not that the information should be omitted or obscured. Families need cost of attendance information to help them plan for college costs.

Accordingly, the best award letters provide overall cost-of-attendance information along with a breakdown into the major categories of the student budget (e.g., tuition and fees, room and board, transportation, etc.). They also provide overall student aid information along with a breakdown into the major types of student aid (e.g., grants, scholarships, work-study, and loans). The award letter also should provide a summary of the family's out-of-pocket cost, distinguishing it from the EFC, and identify what amount will need to be paid to the school. If the school practices gapping, it should state this explicitly and identify the amount of the unmet need in the award letter. Otherwise, families will find the award letter confusing because the totals do not add up.

It is a good idea for the school to identify certain elements of the student budget as estimated costs. Moreover, rather than detail transportation costs down to the cent, some schools will round them to the next closest multiple of $25. The financial aid package should also be identified as an estimate that is subject to revision due to

The requirements of state and federal law and regulations and institutional policy
Changes in the student's financial need or eligibility
Changes in the student's enrollment
Changes in the availability of funding
Correction of errors and omissions
Adjustments because of false or misleading information provided by the student and his/her family
Receipt of outside scholarships
Conflicting information
Completion of the verification process, and
A failure to maintain satisfactory academic progress

Method of Transmitting the Award Letter

Many schools want to transmit the award letter by email in order to save on printing and mailing costs. However, email is not necessarily secure and there is no guarantee that the student will receive the message. Schools must be mindful of their obligations under FERPA to safeguard private student information.

The following process seems to work well for many schools:

New students receive their first award letter by U.S. mail.
Returning students, who have an institutional email account, receive an email message directing them to a secure web site where they can obtain their award information. This web site lets them review the status of their awards, see a list of missing documents, accept or reject or reduce their loans, verify their SAP status, review their cost-of-attendance information (and any adjustments), review their loan history and tell the school about outside scholarships. The web site also may include information about the student's account and any scheduled disbursements.
The secure web site should record the date and subject of any messages sent to the student and also keep a log of when the student used the web site. Ideally the web site should allow the student to review old messages previously sent to them.
Any returning student who does not login to the secure award letter web site within a certain time frame is sent a printed award letter by U.S. mail.

Since the school must have the student's written consent to use electronic notification, and the signature on the FAFSA is insufficient, many schools will use the first award letter to obtain the required consent. They will then send subsequent award letters only to students who have not given consent.

Problems with US Department of Education Auditors

It is not unusual for a school to encounter an auditor from the US Department of Education who insists on seeing signed award letters in the students' files. Apparently some auditors are unaware that this has not been a requirement for more than a decade. The proper response to such a request is to bring them up-to-date on the regulatory requirements, noting that the US Department of Education switched from an "opt-in" requirement to an "opt-out" requirement (as per 34 CFR 668.165(a)(2)) in 1988. Since the schools are no longer required to have a signed award letter, many have switched to a "passive acceptance" system, where students are told to return a signed award letter only if they want to reject one or more forms of financial aid (or to reduce the amount of loans).

Related Resources

NASFAA Award Letter Evaluation Tool

The National Association of Student Financial Aid Administrators (NASFAA) has published an award letter evaluation tool that helps schools improve the design of their award letters.

Federal Student Aid Handbook

The consumer information requirements are discussed in Chapter 6 of Volume 2 of the 2004-2005 Federal Student Aid Handbook. (The consumer information requirements are still discussed in Chapter 6 of Volume 2 of the 2007-2008 Federal Student Aid Handbook, on pages 2-67 through 2-88. These requirements are based on section 485(f) of the Higher Education Act of 1965 and the regulations at 34 CFR 668.41 through 668.48.)