How College Financial Aid Works
excerpts by Dave Roos and Jim Belvin
There are a variety of financial aid tools available to students today, including scholarships, need-based awards, work-study employment and student loans.
Nearly two-thirds of today's full-time college students receive some form of need-based aid [source: NCES]. Need-based financial aid eligibility is based on two calculations -- the total cost of education and the family's ability to pay. The cost of education can vary significantly from institution to institution. Generally, these calculations include all reasonable costs (tuition, room, board and living expenses) of attendance.
To apply for need-based financial aid, families must complete the Free Application for Financial Aid(FAFSA) and, if appropriate, the College Scholarship Service's PROFILE application. These documents are used to determine what amount, if any, a family (and that means both parent and student) can contribute to the annual cost of attendance. That number is known as the Expected Family Contribution (EFC). The specific amount of your EFC may vary somewhat from institution to institution, but the formulas in place ensure that most EFCs are similar.
The formulas consider a variety of family circumstances when determining eligibility. (The College Board Web site has some great financial aid calculators you can use.) Consequently, there's no real cut-off point or maximum income a family can have and still qualify for assistance. Even if you have a comparatively high income, you may still qualify for need-based aid, particularly if you have more than one child in college. Every student, regardless of financial situation, should consider applying for need-based aid to see what happens.
There are two need-based aid applications being used nationally, the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service's PROFILE. The FAFSA is the application for all federal funds and is required by all institutions of higher learning. Many institutions will require complete copies of your most recent tax and W-2 forms.
The PROFILE, which is generally viewed as the application for private or institutional funds, is required by many -- but not all -- institutions. If you're applying to a college whose aid awards include significant levels of institutional funding, there is a good chance that the school will require both forms. If you're unsure which form(s) is required, check with your school's financial aid office.
The FAFSA and the PROFILE rely heavily on numbers from your income tax returns. If you're applying as a dependent of your parents, then the numbers will come from your parents' tax returns. If you are applying as an independent, then use your own tax returns.
In addition to income and asset information, each form also collects demographic data including family size, parent age, number of students in college and other related information. You're also invited to provide each school with information on any extenuating circumstances that affect your family's ability to support educational expenses. Take advantage of the opportunity to provide this information by writing directly to the college(s) you're considering. Don't be shy -- others won't be.
Student Loan Guide
Interactive Student Loan Game Plan
Need-Based and Merit Aid Spreadsheet