Parents: 12 Must-Know College Financial Aid Terms
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College is expensive. Between tuition, room and board, food costs, textbooks, and overall living expenses, a family can easily spend $30,000 or more on their college student in one year. Just because college is expensive, however, doesn’t mean that a college education is not feasible. There are all sorts of financial aid options available to help offset a student’s college costs. These include scholarships, grants, and loans.
As soon as you and your student start the financial aid application process, you may realize that there are some words and acronyms that you are unfamiliar with, and they keep popping up! That’s okay. We’ve all been there. Keep reading for the most essential financial aid terms and their definitions.
Cost of Attendance (COA)
The cost of attendance is how much money it is going to cost your student to attend a certain college in a given year. It takes into consideration not just tuition costs but other costs like room and board, textbooks, and basic living expenses.
The COA amount does not take financial aid into consideration. The more financial aid your student receives, the smaller the COA becomes. Regardless, when you’re determining how much you should save for college, this is the number that you should be looking at, NOT tuition costs.
CSS/Financial Aid Profile
This financial aid application is administered by College Board. Some colleges will require you to fill it out so they can determine whether you’re eligible for non-federal financial aid from the university. This requirement will vary depending on what school you’re applying to. If you want to or have to fill out the CSS, it is always made available via the College Board website October 1st.
Expected Family Contribution (EFC)
The Expected Family Contribution (EFC) is a number calculated by the federal government that tells you approximately how much financial aid you are eligible to receive. It is an index number that is calculated based on the information you provide on the FAFSA.
The formula that determines the EFC is fairly complex, but your family’s income, assets, and benefits are all considered in the formula. Also considered are your family size and the number of family members who will attend college or career school during the year.
Financial Aid Office
This is an office either in your student’s high school or your college (preferably both) whose sole job is to help you and your student afford a college education. The financial aid office can help you and your student apply for financial aid, whether it be in the form of loans, scholarships, grants, or federal aid. In the case of colleges, the financial aid office is also the one that usually disperses financial aid from the college itself.
Free Application for Federal Student Aid (FAFSA)
The FAFSA is a financial aid application that the federal government uses to determine if your student is eligible for financial aid from the government. If your student qualifies for federal aid, it’ll usually come in the form of a loan or grant.
The FAFSA is a long application, so you’ll want to begin preparing for itas early as possible. A general rule is to start filling out the FAFSA after taxes have been filed during your student’s senior year of high school. Pro tip: You should make sure you have as much income and tax information on-hand before you start to fill it out.
If your student is applying for need-based financial aid, grants are your ideal type of financial aid. Grants are essentially free money because you don’t ever have to pay back the money that was given to you.
Grants differ from scholarships because grants deal only with need-based applications, not merit-based applications. In other words, in order to qualify for a grant, your student will need to prove that your family has demonstrated financial need.
A loan is a form of financial aid that must be paid back within a certain amount of time, plus interest. To get a student loan, you must go through a bank, the federal government, or some other lender. Each loan-giving entity will all offer different terms and rates, so feel free to compare all of your loan offers and pick the best ones for you and your student.
A key goal with student loans is to try and get the lowest interest rate possible. Usually, the interest rate on student loans is lower than the interest on private loans, but you still want to try and fish for the smallest rate possible. After all, this is extra money that your student is going to have to pay later on in life on top of the actual loan principal that they have to pay back.
Merit-based financial aid refers to any loan, scholarship, or grant that is awarded to a student solely based on their resume, accomplishments, and application. Merit-based financial aid does not take into consideration a family’s wealth or ability to pay for college but solely focuses on your student’s profile and their application. In order to qualify for merit-based financial aid, your student will usually have to show their high school resume, transcript, and maybe write an additional essay.
Need-based financial aid is awarded to students based on their family’s financial situation and ability to pay for college. This type of financial aid includes grants, loans, and work-study.
In order to qualify for need-based financial aid, you will usually have to fill out applications that make you report your family’s income and tax levels. More likely than not, you will have to prove that these numbers are true with some sort of documentation such as FA forms.
This is a policy that many colleges and universities around the United States have adopted. This is the idea that a college will not make a decision on whether to accept or reject an applicant based on their financial need. The pro to this policy is that colleges can’t reject a student just because they think they’ll have to give them loans or scholarships. The con to this policy is that students can be accepted to universities that they can’t realistically afford to attend.
Scholarships are another form of free money in that the money that you receive does not have to be paid back. Scholarships can come in the form of essay competitions, merit-based applications, need-based applications, or other ways. They are offered from many different sources, both private and public.
Scholarships are a popular form of financial aid, and CollegeVine has covered these extensively. Check out these previous blog posts to learn about the scholarship application process:
Student Aid Report (SAR)
Once you complete the FAFSA, you will receive your Student Aid Report either by paper or mail. The SAR gives provides basic information about your eligibility for financial aid and also lists out some of your answers to the questions on the FAFSA.
Colleges tend to use the SAR to evaluate whether you’d be eligible for the financial aid offered at their university, so be sure to look it over for any errors errors. If you see that something has been reported wrong, you will need to revise and fix your FAFSA application immediately.
For More Information
Need more help navigating the financial aid process? Check out these previous blog posts from CollegeVine:
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