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Paying for College:
» Financial Aid
How Financial Aid Works
and How it Makes College Affordable for You
Don't be scared away by media reports on rising college prices. Financial aid is intended to make up the difference between what your family can afford to pay and what college costs. Over half of the students currently enrolled in college receive some sort of financial aid.
The financial aid system is based on the goal of equal access -- that anyone should be able to attend college, regardless of financial circumstances. Here's how the system works:
- Students and their families are expected to contribute to the cost of college to the extent that they're able.
- If a family is unable to contribute the entire cost, financial aid is available to bridge the gap.
Three main types of financial aid
Financial aid is any type of assistance used to pay college costs that is based on financial need.
- Grants and scholarships
Also called gift aid, grants don't have to be repaid and you don't need to work to earn them. Grant aid comes from federal and state governments and from individual colleges. (Some grants and scholarships are awarded based on merit rather than need.)
- Loans
Most financial aid (nearly 60 percent) comes in the form of loans, aid that must be repaid. Most loans that are awarded based on financial need are low-interest loans sponsored by the federal government. These loans are subsidized by the government so no interest accrues until you begin repayment after you graduate.
- Work
Student employment or work-study aid allows you to earn money to help meet education costs such as books and supplies and personal expenses.
How do you know if you'll qualify for aid?
It depends on your financial circumstances and on the cost of the college. One of the basic premises of financial aid is that the family is expected to contribute to college costs to the extent the family is able. If that amount can't cover the cost, financial aid can help make up the difference. This concept is frequently referred to as the Expected Family Contribution, or EFC for short.
Understanding Your Expected Family Contribution
The Expected Family Contribution (EFC) is determined by whomever is awarding the aid -- usually the federal government or individual colleges and universities. The federal government and financial aid offices use formulas that analyze your family's financial circumstances (such as income and family size) and compare them proportionally with other families' financial circumstances. You're likely to be asked to contribute about the same amount whether you apply to a low-cost school or a high-cost school. So don't automatically discount colleges with higher costs.
Say your EFC is $5,000. At a college with a total cost of $8,000, you'd be eligible for up to $3,000 in financial aid. At a college with a total cost of $25,000, you'd be eligible for up to $20,000 in aid. In other words, you'd be contributing the same amount at both colleges.
For many families, the EFC amount is larger than they believe they can pay.
First, the formulas assume that families will meet their contribution through a combination of savings, current income, and borrowing. In other words, most families can't just pay the EFC out of current income. Instead, they'll need to rely on one or both of the other sources -- savings and/or borrowing to meet that amount.
Second, financial aid is limited. The formulas therefore measure a particular family's ability to pay against other families' ability to pay.
What You're Asked To Pay May Vary
Families often assume that the amount of the Expected Family Contribution (EFC) will be the exact amount they are asked to contribute to college costs. But this isn't always the case.
The actual amount your family is expected to contribute may vary for a number of reasons, including:
- A college's admission and aid policies
- The amount of aid available at a particular college
- Special financial circumstances
Aid policies differ
Different colleges have different ways of assessing need and awarding aid. It's a good idea to ask plenty of questions about how aid is awarded at the colleges you are considering.
There's not always enough money to meet full need
Not every college has enough financial aid to meet the calculated financial need of every applicant. Some colleges may only meet the full need of the most academically qualified students. Other colleges may not be able to meet the full need of any applicant. As a result, the family may be asked to pay more than the EFC.
Handling the financial aid "gap"
If a college's total cost for an academic year is $20,000, and the calculated EFC is $5,000, the student's financial need would be $15,000. If the college had only enough aid funds to offer the student $10,000, the "gap" would be $5,000. The family might handle this gap in a number of ways:
- The parents might pay more than the calculated EFC.
- The student might earn more through a part-time job.
- The student might find ways to reduce costs by living at home, buying used books, choosing a less expensive meal plan, etc.
- The student and/or parents might borrow to help pay the costs.
Special financial circumstances
If you believe that your family has special financial circumstances that will affect your ability to pay and aren't reflected in your EFC, contact the financial aid office. Examples of such circumstances include unusual medical expenses, unemployment, or other situations that affect how much money you'll have available to pay for college.
EFC Questions and Answers
Here's everything you ever wanted to know about your Expected Family Contribution (EFC):
- What is the EFC?
The Expected Family Contribution is a calculated assessment of how much your family will be expected to contribute to college costs. There are currently two main formulas used to determine the EFC. The Federal Methodology is used by the federal government to calculate eligibility for federal aid. The Institutional Methodology is used by many colleges to calculate eligibility for institutional aid programs.
- How is the EFC calculated?
The Expected Family Contribution is calculated by considering the family's financial strength -- their income and assets. Other factors that are considered include the number of family members and the number of family members in college.
- How is the EFC used to determine aid eligibility?
The EFC is subtracted from the cost of attendance at the college. The result is a calculation of the student's "financial need" or eligibility for financial aid. Aid eligibility at a particular college is a function of both the cost of attendance and the expected family contribution. See "Why Your EFC Isn't Set In Stone" for additional EFC information.
- What is the Federal Methodology (FM)?
The Federal Methodology (FM) is a need analysis formula used by the federal government. Based on the information captured on the Free Application for Federal Student Aid (FAFSA), the FM is used to determine eligibility for federal and state financial aid, as well as for institutional aid at some colleges. See the EFC Calculator for an estimate of the expected family contribution using the FM formula.
- What is the Institutional Methodology (IM)?
The Institutional Methodology (IM) is a need analysis formula developed and maintained by the College Board to assist colleges, universities, and private scholarship programs in determining eligibility for institutional and private financial aid funds. The IM relies on information collected on the CSS/Financial Aid PROFILE Application for its calculations.
- What costs does the financial aid office take into account in determining my eligibility for aid?
The financial aid office will take into account the average cost-of-attendance, which includes tuition, student fees, room and board, as well as estimated expenses for books and supplies, personal expenses, and transportation to and from campus.
- What can I do if my EFC as determined by the college is unreasonably high?
Can I make an appeal to the financial aid office?If you decide to appeal the college's determination of your EFC, you'll need to contact the college financial aid office to find out about the appeal process. Most financial aid administrators will require that you put your appeal request in writing, and that you document the special circumstances or changes in income that have occurred since the time you applied for aid.
Even if you can demonstrate your need for additional aid, there may be other families with greater financial need who must be served. You should not approach your appeal as a "let's make a deal" negotiation, since most colleges will listen only to a data-based appeal.
Step-By-Step Guide To Applying For Aid
Break It Down
Although it might seem daunting at first, applying for financial aid, like applying to college, doesn't have to be hard. It just takes a little planning and organization. Here's the general process:
- Apply early.
Don't wait until you get a college acceptance letter to apply for aid, or chances are most grants and scholarships will be gone. If you're applying to college early, your financial aid deadlines will also be early -- usually in October or November. If you're applying regular decision, your financial aid deadlines usually fall in February.
- Figure out what forms you need to complete.
- Most colleges require you to complete the Free Application for Federal Student Aid (FAFSA) to apply for federal and state aid.
- Some colleges have their own institutional forms, in addition to the FAFSA.
- Some colleges require the CSS/Financial Aid PROFILE® to apply for non-federal aid.
- Keep on track of deadlines and details.
Missing a financial aid deadline can jeopardize your eligibility. Save time by gathering all of the financial records you'll need (from income tax returns to mortgage information) before you and your family dive into your forms.
- Consider completing federal income tax returns first.
Income information that you report on your tax returns (IRS forms 1040, 1040A, or 1040EZ) is used on financial aid applications. While you don't have to file your return before you complete your applications, it will be much easier and faster to finish if you have at least completed a rough draft of your tax return.
- Describe any unusual circumstances that might affect your family's ability to pay for college.
If you believe that there are circumstances that aren't reflected on the financial aid forms, contact the college financial aid office directly.
- Complete all forms accurately, completely, and legibly.
Inaccurate, incorrect, or missing information can cause delays in processing your applications.
- Provide all the information requested on the forms.
For instance, if your answer is zero, enter a zero. Don't just leave the question blank. This will speed review of your application.
- Be consistent on all forms.
Use the same name on all financial aid forms. In order to complete your file and assess your eligibility, colleges and the federal government will need to match up your records from several sources. Inconsistencies will slow the process.
- Keep copies of each form.
Whether you're completing the application on paper or online, keep a copy of each form for your records. You may need to refer to a particular form if the college asks for additional information.
- Follow through.
After you submit your forms, sort carefully through any financial aid material you receive in the mail, such as confirmations or requests for additional information. If additional information is needed, send it as soon as possible. If you find errors, address them quickly. When it comes to applying for aid, time is money.
The FAFSA Process
The Free Application for Federal Student Aid, or FAFSA, is the financial aid application form you'll need to apply for federal and state student grants, work-study, and loans. While the FAFSA may seem lengthy and complex, there are many free resources, online and offline, to help you navigate the application process.
Where to find the FAFSA
The FAFSA comes in two versions -- paper and electronic. The paper version is distributed to high schools so you should first check with your guidance office. If you don't have any luck there, try your public library or the financial aid office of a local college. You can also get a paper copy of the FAFSA by calling 1-800-4-FED-AID (433-3243).
There are two ways to fill out the FAFSA electronically:
- FAFSA on the Web
This is the easiest way to apply for federal aid. You can complete, submit, and track the FAFSA over the Web at www.fafsa.ed.gov. Most importantly, your data is checked before it is transmitted to the processing center, so there's less chance of making an error. What's more, filing the FAFSA online can speed up the application process by as many as 7-14 days.
- FAFSA Express software
If you have a PC and a modem, you can download this free software to submit the FAFSA electronically.
Before you apply
Complete your 2002 income tax return
We recommend that your family complete its 2002 income tax returns before filling out the FAFSA -- much of the information requested is the same. Please note that you do not have to file your income tax return with the IRS before you fill out the FAFSA. Here's a list of documents you'll need to get started.
Get a PIN
If you plan to complete and submit your FAFSA through FAFSA on the Web, we recommend that you and your parents obtain a U.S. Department of Education PIN. The PIN will serve as your electronic signature, and gives you the fastest way to submit your application. To get your PIN, simply fill out the brief application at www.pin.ed.gov. Your PIN will be mailed to you in 7-10 days. You can still use FAFSA on the Web without a PIN; you'll just have to print out and mail in a signature page.
Completing the application
Here are some reminders and resources to help you complete your FAFSA.
- January 1 is the first day that you are eligible to file the FAFSA. Try to file as close to this date as possible, as school, state, and private aid deadlines may be much earlier than federal deadlines. Pay attention to your college's priority financial aid deadlines.
- If you have questions about any part of the FAFSA application, go to Completing the FAFSA, a government Web site with a detailed, question-by-question guide to filling out the FAFSA.
- Don't forget that many schools will also require you to submit additional financial aid forms such as the CSS/Financial Aid PROFILE® or institutional financial aid forms.
- If you complete the online version of the CSS/Financial Aid PROFILE before you complete the FAFSA, you can print the College Board's FAFSA Worksheet. It will help you complete your FAFSA using the information you already entered on your PROFILE Application.
What happens after you apply
Once you submit the FAFSA, it goes to a large processing center that handles about nine million forms each year. This is where your family financial information is passed through the federal need formula. If you apply electronically or through FAFSA on the Web and send a signature page, you should receive a Student Aid Report (SAR) Information Acknowledgement within 10-14 days. If you submit the paper version of the FAFSA, you should receive your SAR within four weeks.
Your SAR will contain the data you entered and your EFC, or expected family contribution. The EFC is sent electronically to your state scholarship agency as well as the colleges you listed on the FAFSA. State agencies and colleges will use the EFC to determine the size of your aid award.
If there is a problem with the way you filled out your paper FAFSA, you will be sent a SAR which will show you the items that didn't pass the edit. Once you return the SAR with the correct information, the processing of your FAFSA will resume. It's important that you provide corrected information, as not doing so could delay the process indefinitely.
Help with your FAFSA
If you have questions about your application or about federal student financial aid in general, call the Federal Student Aid Information Center (FSAIC) at 1-800-4-FED-AID (433-3243)/TTY 1-800-730-8913, Monday through Friday, 8:00 AM to midnight EST; Saturdays from 9:00 AM to 6:00 PM EST.
Documents Needed
You will need records of income earned in the year prior to the year you will start school. You may also need records of your parent's income information if you are a dependent student.
For the 2003-2004 school year, you will need financial information from 2002. You will need to refer to:
- Your Social Security Number (can be found on Social Security card)
- Your driver's license (if any)
- Your W-2 Forms and other records of money earned
- Your (and your spouse's, if you are married) 2002 Federal Income Tax Return: IRS Form 1040, 1040A, 1040EZ, 1040Telefile, foreign tax return, or tax return for Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands, the Federated States of Micronesia
- Your parent's 2002 Federal Income Tax Return (if you are a dependent student)
- Your 2002 untaxed income records: Social Security, Temporary Assistance to Needy Families, welfare, or veterans benefits records
- Your 2002 bank statements
- Your 2002 business and investment mortgage information, business and farm records, stocks, bonds, and other investment records
- Your alien registration card (if you are not a U.S. citizen)
In addition, you can display a non-submittable Pre-Application Worksheet for informational purposes.
Keep these records! You may need them again. Do not mail your records with your signature page.
Paying for College
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College Costs
» Financial Aid
Receiving Aid
Strategies for Paying the Bill
Loans At-A-Glance
The White House Initiative gratefully acknowledges collegeboard.com for providing the content found on this page.
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