Making Sense of Your Student’s College Financial Aid Package

High school seniors wait anxiously for that all important college acceptance letter. Parents of those high school seniors wait just as anxiously for that all important financial aid letter. Everyone agrees that college is expensive these days, and most of us need financial help to be able to afford it. The financial aid letter which your student receives from his college may include several different types of aid. Although understanding the finer points of these different types of aid and loans may at times seem like a full time job, it is important to have a general understanding of the different types of help your student’s school may offer.

How do schools determine aid?

Most schools use the FAFSA (Free Application for Federal Student Aid) form to determine your financial need. The FAFSA is filled out and filed with the federal government and the information is sent to the schools that you request. The FAFSA is available in January of each year and can be completed on-line. The federal government is working to make the FAFSA a bit simpler each year.

The FAFSA uses a congressionally established formula to determine your Expected Family Contribution toward your student’s education. (Unfortunately, what the federal government determines you can afford to pay and what you determine you can afford to pay do not often match.) Each college will then try to use financial aid to bridge the gap between your EFC (Expected Family Contribution) and the actual cost of tuition.

Most schools also require students to complete additional financial information for the school’s financial aid office. Be sure to check with your student’s school for all required forms. Schools will also ask you to report any outside scholarships which your student is receiving as that will be a factor in determining the aid package.

Two general categories of financial aid

Very generally, there are two categories of financial aid — Need based aid and non-need based aid or merit aid. Need based aid is financially determined based on your EFC. Merit aid is scholarship aid in recognition of your student’s academic abilities or other special criteria such as athletics, artistic abilities, etc. Not all schools offer merit aid. If a college does offer merit aid, it is often extremely competitive and is often limited.

Types of financial aid

There are several different types of aid which might appear in your student’s financial aid letter. It is important to recognize that they are very different.

Scholarships – A scholarship is a type of grant or gift aid. It is often based on merit, or given to particular categories of students. This could be an academic scholarship, an athletic scholarship, a music or artistic scholarship, a scholarship available to a particular ethnic group or to students from particular areas of the country or entering a particular major. Scholarships may also come from community groups or corporations. There may be restrictions and/or expectations that your student maintain good academic standing in order to continue to receive scholarships. Scholarship aid does not need to be repaid.
Grants — Like a scholarship, a grant is a gift of money that does not have to be repaid. Unlike a scholarship, a grant often does not have to be earned or may not be restricted to certain qualifications. Some grants, such as Federal Pell Grants, may be based on need.
Federal Work Study — Federal work-study is money that your student may earn from a campus job. Not all campus jobs are work-study jobs, so your student will need to investigate when he looks for a campus job. Federal Work Study funds are given by the government to the college to disburse. Students are usually paid minimum wage to work on campus. Work Study is a reimbursement program. You will need to pay tuition initially and then your student may earn these funds. Many students use these funds for expenses such as textbooks and/or living expenses. Read more details about Federal Work Study in our earlier post.
Loans — This will probably make up the largest portion of your financial aid package. Loans will need to be repaid with interest. Loans may be in your name or in your student’s name, and are called self-help assistance since you are responsible for repaying them later. Payment on most college loans may be deferred until after graduation, and occasionally even for a time after graduation if your student stays in close contact with the school and explains the need to defer. Repayment on loans is often based on a ten year plan. Interest is usually charged on loans beginning with the first disbursement, but the federal government may pay interest on some loans while payment is being deferred. Money for loans may go directly to the college or may come to the student to send to the college. Financial aid programs which fit into this category include Federal Direct Loans (to students), Federal Direct PLUS Loans (to parents), Perkins Loans, Stafford Loans, private loans, or others. Each loan may have slightly different qualifications or repayment options. It is important to read all material carefully — and to remember that this type of financial aid needs to be repaid.

Understanding your student’s financial aid package takes effort, but is extremely important. Take time to do your research and don’t hesitate to contact the school’s financial aid office for help in understanding the many types of aid. We also recommend two websites as sources of additional information. Look for additional help at the National Association of Student Financial Aid Administrators (go to Parents and Students on the far right of the page) and www.finaid.org/parents/ , a reputable source of a host of information.

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