The financial aid process can often feel very stressful given the uncertainty of the outcome. However, carving out some time well before college application season begins to learn all you can about the process and commonly used financial aid terms, will go a long way to reducing the stress. Students must fill out the FAFSA to become eligible for federal aid and, in many cases, institutional aid (college’s own funds).
Financial aid comes in the form of grants and scholarship (gift aid which does not have to be repaid) and work-study and loans (self-help aid which has to be earned in the case of work-study; and repaid in the case of loans).
When financial aid is awarded based on a family’s ability to pay, it is considered need-based. Need-based financial aid is based on a family’s Expected Family Contribution (EFC) as determined by the federal methodology used (for federal funds) or institutional methodology (for college’s own funds) from the information provided in the FAFSA and/or CSS PROFILE.
Merit aid, however, is based on some academic or other metrics and is not based on the family’s ability to pay. It is often based on GPA, test scores (ACT® or SAT®), class rank, special talent (athletic, artistic or other talent) or other holistic measures. Application for merit aid is often quite competitive and some colleges do not offer any merit aid – for e.g., Ivy League and some highly selective colleges. At colleges where merit aid is awarded, students falling in the top 10-25% of the applicant pool generally win the largest awards. Students applying for merit aid may be required to complete the FAFSA and/or CSS PROFILE, or the college’s own application.
Below you will find a number of useful financial aid terms to help you navigate the financial aid process.
1. Award Letter
This letter will contain a breakdown of any financial aid being awarded to the student if they accept the offer of admission. Awards will often include loans so it is important to carefully review and compare them with other Award Letters. Questions to ask when comparing 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)
Includes the tuition, housing fee, food and meal plans, transportation, textbooks and other fees a student is expected to pay to attend college in an academic year.
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. This package may or may not include loans. In most cases, colleges will not meet 100% of your demonstrated need. Depending on the makeup of your financial aid package, you may need to take out additional loans to cover your unmet demonstrated need.
4. Expected Family Contribution (EFC)
The EFC is a number used to determine the types of federal aid and the amounts students are eligible to receive. It is the amount the formula has determined your family can afford to contribute towards the cost of your education. 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 approx. 250 private colleges). Some of the factors that affect a family’s EFC is number of students in college, parents’ income and assets, and the student’s income and assets. Getting an estimate of your EFC before you submit the FAFSA or CSS PROFILE will help you figure out the minimum amount you might be asked to pay for college.
5. Free Application For Federal Student Aid (FAFSA)
To determine eligibility for federal student aid — grant, work-study, and loans (subsidized and unsubsidized), prospective college applicants are required to complete the FAFSA. High school seniors applying for financial aid must submit the FAFSA around the same time they are applying for college and keep reapplying every year they are in college. The FAFSA becomes available on October 1.
6. Federal Pell Grant
This grant is available for undergraduate students with financial need. The maximum amount awarded is $6,195 for the 2019-20 award year (July 1, 2019, through June 30, 2020).
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
This 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 a student receives either from the college, state or federal government to pay for college. These funds do not have to be repaid.
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). Students loans are also available through private banks or organizations. However, the federal student loans generally offer lower interest rates and have more flexible repayment terms.
12. Net Price Calculator
Families can begin learning about what college will cost them by using the Net Price Calculator each college is required by law to have on their website. The calculator, usually found on the Financial Aid page, calculates your costs (Net Price) after any eligible grants and scholarships are deducted from the cost of attendance. Net Price is unique to each individual. It is the Cost of Attendance (COA) minus any scholarships and grants you might be eligible to receive.
13. PROFILE (CSS PROFILE)
The College Board’s College Scholarship Service Profile (CSS Profile) is used by private colleges to allow families to apply for institutional financial aid — 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). Approximately 250 colleges use the CSS PROFILE.
14. Parent PLUS Loan
A loan 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 is generated from the FAFSA or CSS PROFILE and 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
These are loans offered by the federal government, but issues through the colleges, and the government pays the interest for the subsidized loan while you are in school. Subsidized loans are awarded based on need to dependent undergraduate students, while unsubsidized loans are available to all students with or without need. Students must complete the FAFSA to become eligible for these loans.