College Financial Aid Basics



After your children have submitted their financial aid applications and started receiving award letters from various colleges, it may be difficult to interpret and compare their offers. The following information should be helpful in this regard. College financial aid is usually characterized as either self-help aid or gift aid. It is awarded based on either need or merit. Self-help aid must be repaid through financial obligation (loans) or service to the college (work-study). These offers are awarded primarily on the basis of need. Gift aid is financial aid that does not require repayment or work (i.e., grants and scholarships). It may be awarded based on either merit or need. Obviously, gift aid is the most desirable form of financial aid.

Merit-based aid is awarded to a student with a special talent (e.g., academic, musical, athletic). Students who have a high GPA, a high class rank, and excellent standardized test scores can earn substantial merit scholarships that can cover a significant amount of college costs. Heavy involvement in activities that colleges are most interested in (athletics, leadership, journalism, music, etc.) will help earn even more scholarship dollars.

The better college financial aid awards usually are given to students with merit. The student's unique skills and abilities and the college's interest will determine the amount of merit-based aid offered. Need-based financial aid is awarded solely on the financial needs of the family.

Much financial aid awarded comes from the federal government. This aid is available to students enrolled in an eligible program at a school participating in the federal student aid programs. An eligible program is a course of study that leads to a degree or certificate and meets the U.S. Department of Education's requirements. Eligible schools include four-year or two-year public or private educational institutions, career schools, or trade schools.

Aid may cover school expenses, including tuition and fees, room and board, books and supplies, transportation, and some personal expenses. Once need has been established, eligible students may be offered some combination of the following types of federal student aid:

a. Work-study. The Federal Work-Study Program encourages community service and work related to each student's course of study. Students earn at least the current federal minimum wage, but the amount might be higher depending on the type of work and the skills required.

b. Loans. The federal government offers two primary loan programs that may be part of a college's financial aid offer to an eligible student: Perkins loans and Stafford loans. These loans are desirable because they offer low interest rates and generous repayment terms.

c. Grants. The federal government offers several grant programs for certain low-income students or students in certain fields of study (such as the TEACH grant).

After submitting the financial aid application, the student will receive a Student Aid Report that indicates the amount of money the family (student and parents) is expected to contribute to the student's college expenses for the upcoming school year. This is the Expected Family Contribution (EFC). All colleges will use this number as the basis for awarding their need-based financial aid. Families will receive college financial aid awards that will state the amount and type of financial aid offered. Students may accept, decline, or negotiate any part of an aid award. The college should not be allowed to pressure students into accepting an aid award before they have time to receive and compare awards from other colleges. Students should request an extension to reply if they have not received all aid awards. When a particular college will not grant an extension, students can accept the aid award to safeguard the award at that college. The acceptance does not commit the student to attending the college; it merely holds the aid award for the student.

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