Embarking on the journey of higher education can feel like setting sail on an ocean of unknowns. The winds of tuition fees, the waves of paperwork, and the stormy seas of financial uncertainty can be daunting. But fear not, your compass in this voyage is knowledge, and your map is a glossary of financial aid terms.
Understanding these terms will empower you to ask the right questions, spot a lucrative financial aid award, and steer clear of the whirlpool of student debt.
How to Apply for Financial Aid
Applying for financial aid can help make college more affordable. To start, you will need to complete the Free Application for Federal Student Aid (FAFSA) form. If you are applying to a private college, you may need to fill out both the FAFSA and/or the CSS PROFILE.
The FAFSA (and the CSS PROFILE) ask questions about your family's income and assets to determine how much aid you may be eligible for. Make sure to have important documents ready, such as your and your parents' tax returns.
Types of Financial Aid
Financial aid can be in the form of grants, scholarships, work-study, or loans. It comes from different sources like the federal government, state government, colleges, and private institutions (such as Microsoft).
Financial aid can be need-based or merit-based. Need-based aid is given based on the family's ability to pay, determined by your Student Aid Index (formerly known as EFC or Expected Family Contribution) from the information provided in the FAFSA and/or CSS PROFILE.
Merit-based aid, on the other hand, is based on academic or other achievements and is not tied to the family's financial situation. It can depend on things like GPA, test scores, class rank, or special talents.
Not all colleges offer merit aid, like Ivy League and some highly selective colleges. For those that do, you usually need to be in the top 10-25% of applicants to receive a significant award. Some students applying for merit aid may still need to fill out the FAFSA and/or CSS PROFILE or the college's own application.
16 Basic Financial Aid Terms You Should Know:
1. Award Letter
The award letter will provide a breakdown of any financial aid being awarded to the student if they accept the offer of admission.
In addition, awards will often include loans so it is important to carefully review and compare them with other Award Letters. Here are some questions to ask when comparing your financial aid awards:
- Does the award renew itself each year?
- What GPA has to be met for renewal of award?
- How much is guaranteed in second, third and fourth year of college?
- Will the college adjust the award for special financial circumstances?
2. Cost of Attendance (COA)
Cost of Attendance (COA) is the total amount of money a student is expected to pay to attend college for an academic year. It includes the cost of tuition, housing fees, food and meal plans, transportation, textbooks, and other fees.
3. Demonstrated Financial Need
Some colleges claim to meet 100% of a student's demonstrated financial need, but what does that even mean. In simple terms "demonstrated need" is calculated as follows:
Cost of Attendance MINUS Expected Family Contribution = Demonstrated Need
EXAMPLE: (the following is for demonstration purposes only):
Cost of Attendance (COA) at Austin College $56,557
Expected Family Contributed (EFC) - $20,000
Demonstrated Need = $36,557
Using the example above, a college that meets 100% of demonstrated need would award a financial aid package of $36,557. However, it's important to note that this package may or may not include loans.
In most cases, colleges will not meet 100% of your demonstrated need. Therefore, depending on the composition of your financial aid package, you may need to consider taking out additional loans to cover any unmet demonstrated need.
4. Student Aid Index - SAI (formerly EFC)
The Student Aid Index (SAI; formerly known as EFC) is a number used to determine the types of federal aid and the amounts students are eligible to receive. This EFC number is calculated based on the data families provide when they complete the FAFSA and, in some cases, the CSS PROFILE (used by almost 400 colleges).
Some of the factors that affect a family's SAI is parents' income and assets, and the student's income and assets. It might be a good idea to get an estimate of your SAI before you submit the FAFSA or CSS PROFILE.
5. Free Application For Federal Student Aid (FAFSA)
The FAFSA is a form that determines if students are eligible for federal student aid, including grants and loans. It is mandatory for prospective college students seeking federal financial aid to complete the FAFSA, and it becomes available on October 1.
High school seniors should apply for financial aid around the same time they submit their applications for college. Some financial aid is given on a first-come, first-served basis, so applying early is beneficial.
Additionally, it's crucial to note that you must reapply for financial aid every year in college.
6. Federal Pell Grant
The Pell Grant is available for undergraduate students with financial need. The maximum amount awarded is $6,895 for the 2022-23 award year (July 1, 2022, through June 30, 2023). The Pell Grant could be increased to $7,395 for the 2023-24 award year.
7. Federal Perkins Loan
This federal loan is offered through the recipient’s college, and is reserved for undergraduate and graduate students who demonstrate financial need.
8. Federal Work-Study
This work-study program allows students to work part-time and earn money to help pay for their education related expenses. Some colleges might offer this option.
However, you are expected to find the job on your own and the work-study forms part of a student’s financial aid package.
9. Financial Need
Financial Need is the difference between the Cost of Attendance (COA) and your Expected Family Contribution (EFC). Some colleges will provide a financial aid package that meets 100% of your financial need, while others will not.
Keep in mind, some colleges claim to meet 100% financial need; however, the financial aid package could include loans. The most generous colleges will meet 100% of need without loans.
Grants are money that students receive to help pay for college, and they don't have to pay it back. These funds are available from different sources such as the federal government, state governments, and colleges.
One common example of a grant is the Pell Grant, which is given by the federal government to students with financial need. Grants are a great way to make college more affordable and reduce the burden of student loans.
11. Loans (Student Loans)
Student loans often make up part of financial aid packages. A loan, subsidized or unsubsidized by the federal government, has to be repaid with interest (see subsidized and unsubsidized loans below).
Student loans are also available through private banks or the college. However, the federal student loans generally offer lower interest rates and have more flexible repayment terms.
12. Net Price Calculator
If you would like to get estimate for college before you apply, then the Net Price Calculator is the perfect tool for you. Each college is required by law to have one on their website.
The calculator, typically located on the Financial Aid page, determines your costs (Net Price) by deducting any applicable grants and scholarships from the cost of attendance.
Net Price varies for each person. It is calculated by subtracting any scholarships and grants that you may be eligible for from the Cost of Attendance (COA).
13. PROFILE (CSS PROFILE)
Families applying for institutional financial aid at private colleges (the college's money), use the College Board's College Scholarship Service Profile (CSS Profile). This is money from the college's own funds (non-federal financial aid).
Students applying for financial aid at these institutions must often submit both the CSS PROFILE and the FAFSA (for federal financial aid). Almost 400 colleges use the CSS PROFILE.
14. Parent PLUS Loan
A PLUS Loan is available to parents of undergraduate dependent students. Parents have to pass a credit check and repay the loan amount borrowed with interest. If parents are unable to pass a credit check, they might be able to use a co-signer.
Additionally, students could qualify for a higher amount in unsubsidized loans if their parents were denied a Parent PLUS Loan.
15. Student Aid Report (SAR)
This report, generated from the FAFSA or CSS PROFILE, includes the family’s EFC. Both the college and student/parent will receive a copy. Colleges use these reports as a basis for making financial aid awards. Here is a link to a sample SAR.
16. Unsubsidized and subsidized loans
Unsubsidized loans are offered by the federal government, but issued through the colleges. The federal government pays the interest for the subsidized loan while you are in school. Subsidized loans are awarded based on financial need to undergraduate students.
However, unsubsidized loans are available to all students with or without need. Students must first complete the FAFSA to become eligible for these loans.
In conclusion, understanding these 16 financial aid terms is crucial as you navigate the college application and funding process. You can make more informed decisions about college if you know the difference between grants, scholarships, and loans and are familiar with terms like SAI, COA, and FAFSA.
Stay proactive in exploring your options, and with this knowledge, you can maximize your chances of securing the financial aid you need to save big on college costs. Remember, financial aid is within reach, and armed with these key terms, you are well-equipped to navigate this oft-confusing space.