College application deadlines are just around the corner, and financial aid forms are made available on October 1! Read on to understand the basics of financial aid and how to maximize your chances of receiving grants and low-interest loans.
Let’s Start with Some Terminology:
- Cost of Attendance (COA): The combined cost of attending a school, including tuition, books and supplies, food and housing, transportation, and other personal expenses before financial aid is applied
- Net Price: The actual cost of attending a school after financial aid and scholarships are applied
- Need-Based Aid: Financial aid that is based on the family’s finances and ability to pay
- Merit-Based Aid: Financial aid that is awarded based on the student’s accomplishments (academic, athletic, etc.); it is sometimes given solely on the basis of GPA and SAT/ACT scores, and sometimes based on a subjective combination of factors
- Grants: Financial aid that does NOT need to be paid back (aka, free money!)
- Loans: Financial aid that must be repaid, either while the student is in school or after they graduate
- Work-Study: Need-based aid that is given to students in the form of a paycheck from an on-campus job; this type of aid is NOT applied to the student’s bill
- Free Application for Federal Student Aid (FAFSA): A form that collects a family’s financial information to determine eligibility for federal grants and loans, as well as need-based aid, from colleges and universities. The FAFSA is required for all students seeking federal or need-based aid
- FSA ID/Account: A login tied to your Social Security Number that is used to electronically sign the FAFSA and access all federal aid and loan information; both the student and one parent should have an FSA ID
- IRS Data Retrieval Tool (DRT): An option shown on the FAFSA for families to import their financial information directly from the IRS rather than typing everything manually; not all families will be eligible to use this tool
- Estimated Family Contribution (EFC): A measurement of a family’s financial strength produced by the FAFSA and used to determine financial need; this is NOT necessarily what families can expect to pay for college
- FAFSA Verification: An additional step required for some families at some schools to confirm their information after submitting the FAFSA. Families will be notified by colleges’ financial aid offices if additional documentation is required to determine aid.
- College Scholarship Service (CSS) Profile: A more detailed collection of a family’s financial information that is required by many colleges that award need-based aid
- Award Letter: A mailed or electronic document from colleges listing all federal, state, and institutional financial aid for which the student is eligible for that year only
How Do We Know Which Colleges We Can Afford?
It is essential that families have honest conversations about what they can afford before their student falls in love with a school. Do your research to avoid the heartbreak of finding a dream school, only to realize it falls outside your budget. Even worse would be making a financially irresponsible decision to enroll there, so consider asking yourself these questions:
- How much can we afford to pay out of pocket for college each year?
- How much can we afford to take out in loans? Will these be in the student’s name, parent’s name, or both?
- What is our bottom line? What cost will we rule out even if our student is accepted?
- What percentage of financial need is typically met by schools on our list?
- What will be the total cost of this college over four years? Will our debt be manageable?
- Based on our student’s field of interest, do we also need to consider graduate school costs further down the line?
- What are the pros and cons of our student working while in college? What would their earnings be used for? How many hours could they work each week?
To find out how much financial need a college typically covers, Google search “<college name> Common Data Set,” then scroll to Section H2 of the document. More financial aid information can be found throughout Section H. The US Department of Education’s College Scorecard is another great tool for browsing college statistics, including average net price based on various family income ranges. For an even more personalized estimate, families should complete the Net Price Calculator for each school on their student’s list. This provides a detailed overview of what aid the student might be eligible for at that particular school.
What Grants Are Available?
- Merit-Based Aid (Scholarships): Check out our blog post on maximizing merit aid!
- Federal Pell Grant: Up to $6,895 per year awarded to families who have completed the FAFSA and have an EFC below about $6,000
- Federal Supplemental Educational Opportunity Grant (FSEOG): Limited funds awarded by some schools for students with exceptional financial need
- State Grants: Visit NASFAA for more information about your state
- Other Institutional Grants: Will have various names and appear on award letters
What Loans Are Available?
- Federal Direct Loans: Low-interest federal loans in the student’s name that are awarded by completing the FAFSA. Repayment begins six months after college graduation, and flexible payment plans based on income are available.
- Subsidized: Awarded based on financial need, and the government pays interest while the student is in school
- Unsubsidized: Not based on need, and compounding interest accrues while the student is in school
- Parent PLUS: Federal loan that parents can apply for on their student’s behalf; repayment may begin immediately or six months after the student graduates
- Private: Provided by state agencies, banks, or other lenders and have a wide range of interest rates and terms
What Materials Do We Need to Apply for Financial Aid?
- Parent and student FSA IDs
- Taxable income information for the parents and student (for the 2023–2024 FAFSA, families should use 2021 tax returns)
- Untaxed income records (child support, worker’s compensation, etc.)
- Current account and asset balances (bank statements, business assets, value of stocks/bonds)
- Real estate and rental property information (excludes primary residence)
- Trust funds and other investment funds
- FAFSA does NOT require information about:
- The home you live in
- Life insurance
- Retirement funds
- Cash already reported
- Non-owned UGMA and UTMA
- Information about the home you live in
- Information about family-owned businesses
- Value of retirement funds
When Do We Need to Apply for Aid?
The FAFSA and CSS Profile open on October 1 of a student’s senior year, but deadlines vary widely by school. Some colleges will have strict deadlines, while others have “preferred” or “priority” dates that maximize students’ chances of receiving institutional aid. The easiest way to find your deadlines is to Google search “<college name> FAFSA deadline” and click the link to the college’s website. In general, students should submit the FAFSA no later than March of their senior year in order to receive financial aid award letters in advance of May 1st, when they must choose where to enroll.
How Do We Compare Aid Packages at Different Schools?
After you submit financial aid applications, and your student is accepted to a school, the college will send you a financial aid award letter that lists all federal, state, and institutional aid the student will receive. Federal aid is the same for every school, while state and institutional aid can vary. For this reason, it is important to compare packages and not only determine if a school is affordable, but also whether it is a fair deal.
Award letters typically have different formats and levels of detail, so it can be helpful to put all this information into a spreadsheet so it is easier to compare schools. List the COA and subtract any grants to get your net price. Then, subtract any loans to determine what your out-of-pocket cost will be, as well as total indebtedness. Remember, this is only for one out of four years, so it is essential to consider long-term costs and how they might change as your finances change.
It is always best to wait until you have all award letters in hand before making an enrollment decision. Even if you are happy with the package at your student’s dream school, you can use offers from other colleges to negotiate more aid. Once you finalize your package, follow the necessary steps outlined on your award letter to accept the offer and enroll.
Waiting until after January 1 to complete the FAFSA will result in more accurate aid, because I can use my most recent year’s tax return.
The FAFSA requires all applicants in a given year to use the same tax year information. Families of students who will be going to college in Fall 2023 should use tax information from 2021 (not 2022) no matter when they apply.
My EFC is $20,000, so that’s what we can expect to pay no matter where my student goes.
EFC is not what families are expected to pay for college. Rather, it is an estimate of what they could realistically afford. The gap between a family’s EFC and a school’s COA is their financial need, and colleges are not required to fill this gap with aid so that your bill matches your EFC. So, while you only have one EFC, you will have a different net price for every school.
Work-study shows up on my student’s award letter, so it will be credited to our account just like any other financial aid.
Colleges that list work-study in this way are tricky. Even if it looks like these funds are subtracted from your net price, they will not be applied to your bill. They are awarded directly to the student in the form of paychecks for an on-campus job, so unless the student is saving all those checks for next year’s tuition bill, it is nothing more than pocket money.