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    A Beginner’s Guide to College Financial Aid

    Posted July 26, 2018, 12:00 pm
    Drawing of hand putting money in piggy bank surrounded by textbooks.

    Financial aid can be a confusing part of the college application process. Even if your parents can afford to pay for college, it’s a good idea to learn what aid is available and apply for it.

    You aren’t obligated to accept it, but most students qualify for some form of aid, and if it’s available, why not use it?

    What is financial aid?

    Financial aid is intended to make up the difference between what your family can afford to pay and what college actually costs. With college tuition rising rapidly, more than half of the students currently enrolled in college receive some sort of financial aid to help pay for college.

    The system is based on the premise that anyone should be able to attend college, regardless of financial circumstances. However, students and their families are expected to contribute to the extent that they are able.

    There are two types of aid: need-based and non-need-based. Need-based aid includes grants and scholarships that are issued based on the family’s ability to contribute to education costs. Non-need-based aid is allocated solely based on availability, not need.

    There are three main types of financial aid: grants and scholarships, loans and work study.

    What is “free” money?

    Not all aid is equal and the best aid is the aid you don’t have to pay back. It’s like getting a huge coupon of savings to use for your college education. Here are the types of aid you can receive that you won’t have to pay back after graduation:

    • Federal Grants – These are grants given by the federal government.
    • Pell Grant – This grant is given to students with exceptional financial need.
    • College Grants – These grants are awarded by the individual colleges based on financial need.
    • State Grants – These grants are given to students who plan to attend college in their own state (and states are strict about residency).
    • Private Scholarships – There are a multitude of private scholarships available awarded by private organizations and businesses for every type of student.
    • Institutional Scholarships – These scholarships are given by individual colleges based on the student’s qualifications or financial need.
    • Federal Scholarships – Scholarships funded by government agencies.
    • Tuition Waiver – This waiver is offered by colleges to students who meet specific criteria (e.g. child of a POW/MIA)

    What types of education loans are available?

    Not all college loans are equal.

    There are two types of government-based loans: subsidized and unsubsidized. Subsidized loans have lower interest rates and are awarded based on the student’s financial need with interest deferred until after graduation. Unsubsidized loans are awarded without regard to financial need with interest payments beginning immediately and regular payments due after graduation. Following is a brief description of each:

    • Perkins Loan – The best student loan available. A campus-based loan with interest paid by the government during the in-school and grace periods.
    • Stafford Loan – Government based loans that can be either subsidized or unsubsidized.
    • PLUS (Federal Parent Loans for Undergraduate Students) – This loan is for creditworthy parents and has payments due beginning 60 days after it is disbursed with relatively low interest rates.
    • Private Loan – Loan offered by private lenders usually with higher interest rates than government loans.
    • Institutional Loan – A loan in which the school is the lender.

    Once you have chosen the loan that best fits your needs, do the research and educate yourself about repayment, interest rates and grace periods.

    What is work-study?

    The Federal Work-Study Program provides a method for college students to earn funds to be used toward their education. The program is based on financial need and students must be accepted into the program to qualify which is determined by completing the Free Application for Federal Student Aid or FAFSA.

    Work-study jobs on campus are given on a first-come, first-served basis. The money you earn is dispersed directly to you to use for college expenses. It is not given directly to the college to pay tuition, room and board.

    What is the FAFSA and do I need to file it?

    The FAFSA is the Free Application for Federal Student Aid and you should apply if you want any chance to receive federal and state student grants, work study, loans or merit-based aid. If you don’t complete the FAFSA, you can’t apply for student loans. Colleges also use these figures when determining financial aid eligibility for grants and scholarships. Plus, many states use your FAFSA data to determine your eligibility for their aid.

    The FAFSA is available on Oct. 1 of every year. You should complete it as close to that date as possible in the fall of your senior year (or as soon as your parents complete their taxes in January). Aid is dispersed on a first-come, first-served basis. The sooner you apply, the more likely you will receive a portion of the financial aid pie.

    Even if you think you won’t qualify for any aid, complete the application. There isn’t an income cutoff to qualify for financial aid. Your eligibility for financial aid is based on a number of factors and not just you or your parents’ income.

    What is the EFC?

    The Expected Family Contribution (EFC) is how much money your family is expected to contribute to your college education for one year. Typically, the lower your EFC, the more financial aid you will receive.

    Factors such as family size, number of family members in college, family savings, and current earnings (information you provide on the FAFSA) are used to calculate this figure. Once your FAFSA is processed, you will receive a Student Aid Report (SAR) with your official EFC figure.

    You're not the only one who receives your EFC information. The same information is also sent to the schools you listed on the FAFSA. The financial aid office will use your EFC to determine your financial need.

    Financial need is defined as the difference between the cost of attending college and your EFC: Cost of Attendance (COA) minus Expected Family Contribution (EFC) equals Financial Need. Based on this figure, the financial aid office will prepare a financial aid package and craft a financial award letter.

    The lower your EFC, the more financial aid you will receive. The higher the EFC, the less aid will be awarded, barring all the other extenuating circumstances and additional factors that come into play. Basically, nothing is set in stone. Negotiation and explanation can mean that figure is adjusted on a school by school basis.

    You can calculate your EFC by visiting FinAid.org.

    What is an award letter and how do you use it?

    As the offers of admission arrive from colleges, the financial aid award letters will follow. They can be confusing and vague. Added to the confusion is that every award letter is different, making it hard to easily compare them side by side.

    Thankfully, there are tools available and information to help you look at these letters for what they are: the college’s pitch for you to accept their offer of admission. You control this process and you hold the cards. It’s your decision to accept or reject their offer based on the amount of aid they are willing to give you. Money, in this situation, is everything.

    If a college wants you to attend, they will back it up with money. No money means their offer is probably based on filling a quota and expecting you will decline to attend. And you should. Who wants to attend a college that doesn’t value you as a student?

    But before you accept, reject, or negotiate with the college, you need to understand the award letter and its components. Every award letter should contain these basic components:

    • The full cost of attendance, which should be broken down into expenses such as tuition, room and board, textbooks, and even travel.
    • Grants and scholarships should be clearly listed (neither has to be repaid).
    • Loans (listed by type and amount), including the interest rates.
    • The net amount you will pay after the financial aid is deducted.
    • The EFC (expected family contribution).

    Be cautious in evaluating these awards. Lurking between the lines in these award letters are some practices colleges use when offering admission and financial aid.

    Colleges will either lure students to accept their offer of admission or discourage those students who were only offered admission to fill their quotas and inflate their numbers. Beware of these practices:

    Front loading

    This happens when colleges make their most generous financial aid award offers to applicants as a lure to attend. When students return the following year, they may find their school has dropped their previously awarded grants and scholarships. Always ask if the awards are renewable.


    Gapping is the gap between what you can afford to pay (your EFC) and what colleges offer in aid. Gapping happens when a college makes an offer of admission and doesn’t back it up with financial aid.

    Colleges use the tactic to “weed out” the good applicants from the average applicants. Quite simply, if you are at the top of their applicant pool, you will receive the aid required to attend. If not, you will be gapped, in the hopes you will reject the offer of admission.

    Padding the Award

    Colleges will pad the EFC numbers with federal student loans, federal parent loans and work-study. These should NOT be considered when determining if the college is gapping your student. All students qualify for federal student loans. College aid should only be in the form of merit scholarships and grants.

    The lesson is to carefully scrutinize, analyze and question each item in their financial aid awards before bothering to compare one college’s offer to another. It may turn out that freshman year is the best deal at one place but if the total years until graduation are tallied, the best deal is at another school.

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