20 Sep 10 Financial Aid Terms Every Parent Should Know
Paying for college may be my least favorite topic in college admissions, but it may also be the most important. When finding colleges that are good fits for my students, we always address affordability – because a college that is a great academic and social fit is no fit at all if it’s not affordable. With the FAFSA opening next Friday, now seems like a good time to review some basic terms relevant to paying for college.
Cost of Attendance (COA): COA is the amount it will cost a student to go to school. The COA is the estimate of tuition and fees, room and board, books, supplies, transportation, and miscellaneous expenses.
FAFSA: The Free Application for Federal Student Aid (FAFSA) is an application on the U.S. Department of Education’s website where students can apply for federal financial aid and where the EFC/SAI (see below) is calculated. One parent and the student must each create a Financial Student Aid (FSA) ID. Visit StudentAid.gov/fsa-id/create-account/launch to create a FSA ID. The parent and student need their Social Security number, full name, and date of birth.
Families should be aware that some colleges require students to complete a FAFSA to be eligible for merit-based aid. There is no clearinghouse that tracks this information. Therefore, each family must check with the colleges to which the student is applying to determine if a FAFSA is required for merit-based aid.
CSS Profile: The CSS Profile is a service of the College Board, the owners of the SAT. Colleges (mostly private) that request a CSS Profile can accept that information through the College Board’s Institutional Documentation Service (IDOC). The IDOC is a service that collects family financial documents and distributes them to institutions that require the CSS profile on behalf of the student.
Estimated Family Contribution (EFC)/Student Aid Index (SAI): These two terms are effectively the same – with the 2020 changes to the FAFSA the SAI nomenclature will replace EFC in 2023. The EFC/SAI is an index that college financial aid offices use to determine how much need-based federal financial aid a student would receive if they were to attend their school. The information reported on the FAFSA or CSS Profile is used to calculate the EFC/SAI. The federal EFC/SAI is calculated according to a formula established by law.
Demonstrated need: This is the difference between the cost of attendance and the amount a family is expected to pay (COA – EFC/SAI = demonstrated need). In other words, it’s the amount of financial aid a student needs to attend a college, based on the formula used to calculate the EFC/SAI.
Net Price: Net Price is the actual amount that a student pays to attend an institution in a single academic year after subtracting scholarships and grants the student receives. Scholarships and grants are forms of financial aid that a student does not have to pay back. By law, every college must have a net price calculator on their website that allows prospective students to enter information about themselves to find out what students like them paid to attend the institution in the previous year, after taking grants and scholarship aid into account. It is important to understand that this is a non-binding estimate and is often a “best case” scenario for predicting how much a family will be expected to pay for college.
Gapping: Very few colleges meet 100% of a student’s demonstrated financial need. Gapping occurs when a college’s financial aid package falls short of the student’s financial need. This unmet need makes college less affordable because it requires families to borrow more money to pay for college.
Need-Based Aid: Need-based financial aid is awarded through the federal government, state government or colleges. The federal government awards three types of need-based aid: Pell Grants, work-study, and subsidized direct student loans. Families must complete the FAFSA to determine eligibility for need-based financial aid.
Merit Aid: If a family does not qualify for need-based aid, a student can still receive merit-based aid. Merit aid is typically based on academic ability, talent or achievements related to things like athletics, arts or civic participation. Merit aid can come directly from a college (referred to as “institutional aid”) of from outside scholarships, many of which require essays and which typically consider grades, standardized test scores and extracurricular activities in awarding money. As noted above, even though merit aid is not based on need, a small number of colleges require the FAFSA to be filed to receive merit aid.
Student Loans: Before taking out student loans, parents and students should understand the repayment costs. One useful tool is the Loan Simulator on the Department of Education’s website: https://studentaid.gov/loan-simulator/.
Important Dates: The FAFSA and CSS Profile open on October 1st of the student’s senior year. It is important to create your account and complete the application as soon after opening as possible. Although it varies by college, March 1st of the student’s senior year is typically when all finalized documentation must reach the college’s financial aid office. Be aware of specific deadlines required by your state and school.