With the cost of college continuing to increase year after year, applying to college usually involves applying for financial aid. And for many families, financial aid can be the deciding factor in whether a child attends the college of his or her choice. As a result, it's important to understand how the aid process works so you can compare the financial aid packages your child receives.
What types of financial aid are available?
Financial aid is money distributed primarily by the federal government and individual colleges in the form of student loans, grants, scholarships, and work-study jobs. Loans and work-study must be repaid (through monetary or work obligations), while grants and scholarships do not. A student can receive both federal and college aid. Financial aid can be further broken down into two types of aid: need-based, which is based on your child's financial need, and merit-based, which is based on your child's academic, athletic, or artistic merit.
How is financial need determined?
Financial need is generally determined by looking at your family's income, assets, and household information. The government's aid application, the Free Application for Federal Student Aid (FAFSA), uses a formula known as the federal methodology to calculate financial need. The resulting figure is known as your expected family contribution or EFC, which is the amount of money you must contribute toward college costs in order for your child to be eligible for need-based financial aid. Your EFC remains constant, no matter which college your child applies to. If you filled out the FAFSA this past fall, you received a Student Aid Report outlining your family's EFC.
The Student Aid Report that outlines your EFC is also sent to each college that your child listed on the FAFSA. The financial aid administrator at each school that has accepted your child uses the report to come up with an aid package that attempts to meet your child's financial need.
Keep in mind that your EFC is not the same as your child's financial need. To calculate financial need, subtract your EFC from the cost at any given college. Because tuition, fees, and room-and-board expenses are different at each college, your child's financial need will vary depending on the cost of a particular college.
And just because your child has financial need doesn't necessarily mean that colleges will meet 100% of that need. In fact, it's not uncommon for colleges to meet only a portion of it. If this happens to you, you'll have to make up the gap, in addition to paying your EFC.
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What about merit-based aid?
Colleges often use favorable merit aid packages to attract certain students to their campuses, regardless of their financial need. The availability of college-sponsored merit aid tends to fluctuate from year to year and from college to college as schools decide how much of their endowments to spend, as well as the specific academic and extracurricular programs they want to focus on.
How should you compare aid awards?
Sometime in late winter or early spring, your child will receive financial aid award letters that detail the specific amount and type of financial aid that each college is offering. Some colleges may send a letter, some may post the information on a password-protected online site, and some may do both. Make sure to look over the award carefully. If you have questions or your financial circumstances have changed since you filed the FAFSA, contact the college's financial aid office.
To compare offers, first determine your out-of-pocket costs, or net price, for each school by subtracting any grant or scholarship aid (which doesn't need to be repaid) from the total cost of attendance. Next, look at the loan component of each award to see how much, if any, you or your child will need to borrow. Then compare the net price and loan amounts across all colleges.
What if you didn't get the financial aid package you were expecting?
If you'd like to lobby a particular school for more aid, tread carefully. A polite letter to the financial aid administrator followed up by a phone call is appropriate. Your chances for getting more aid are best if you can document a change in circumstances that affects your ability to pay, such as a recent job loss, unusually high medical bills, or some other unforeseen event.
How much should you rely on aid?
While financial aid can play a part in helping pay for your child's college education, you shouldn't rely too heavily on it. Absent a large college grant or scholarship, student loans often make up the largest percentage of the typical financial aid package. It's important to remember that if you mainly rely on loans to finance your child's college education, you and/or your child can end up with a large amount of debt that can become burdensome.
If you have questions about how this affects your particular situation, please call our office.