Financial Aid Red Flags: 3 Things to Avoid When Applying For Additional College Finance

Tips & Tricks

Financial aid award letters can be confusing. Every college creates its own financial aid letter format and no two are the same. However, here are three red flags you need to watch for when comparing your college options no matter what format a college uses.

Financial Aid Red Flags

1. Parent Plus Loans

Parent Plus Loans also known as a Direct Plus Loans allow a parent to borrow up to the cost of attendance, if approved for the loan, for a student's education. They are often the largest loan amount listed on an award letter.

Why are parent plus loans a red flag?

  • This loan is in the parent's name and the parent is responsible to repay the loan
  • If the parent is unable to repay the loan their wages could be garnished
  • It carries a high interest rate - 5.30% as of July 2020
  • Interest begins to accumulate as soon as the loan is released

Bottom line: Parent Plus Loans can substantially delay a parent's ability to retire and significantly increase their debt.

2. Non-renewable institutional scholarships or grants

Non-renewable institutional scholarships or grants are monetary awards given to a student during their first year of attendance.

Why are Non-renewable institutional scholarships or grants a red flag

The awarded amount is only for the first year of attendance.

Bottom line: Students have to find a way to cover the original awarded amount for the remaining 3 years.

3. Financial aid gap 

A financial aid gap is the difference between the cost of attendance and the money offered in the financial aid package.

Why are Financial aid gaps a red flag?

The gap has to be paid in cash or by additional private loans.

Bottom line: Students or families have to come up with cash for the difference between what the college costs and the amount of the financial aid offered.

The inclusion of a Parent Plus Loan and/or a financial aid gap could be a sign that the college is too expensive. Before accepting a loan students/families should take into consideration that the year one loan amount will probably be needed for the remaining three years. Simply put, multiply all gaps and loans by 4 and remember that's still not including interest for the loans.

Tips to remember before committing to a college

  1. Compare financial aid award letters from all the colleges where the student has been accepted.
  2. Weigh the short and long term financial impact each award will have on the family and the student.

This article was originally published March 8th, 2021 on

An HBCU student with scholarship application