5 Common College Financial Aid Terms Defined
If you’re the parent of a high school student, get ready to learn a new language very soon. I’m not talking about French or Spanish. The language you’ll need to be fluent in is financial aid.
Although everything is in the English language, the terms and acronyms can all be a bit confusing, especially if this is your first time dipping your feet into the financial aid pool.
If you’re not careful and don’t pay close attention, you could find yourself drowning in a sea of confusion and washing up on shore without any free money to help your child pay for college. But don’t worry, we’re here to throw you a life preserver and make sure you stay afloat.
We’ve put together a list of five of the most common college financial aid terms you’ll come across during the college admissions process, and by the end of this post, we’re confident that you will know enough to keep your head above water and help your child sail smoothly through the college financial aid process.
There’s a reason this one is listed first. It’s the most important part of the financial aid process and your child’s key to institutional, state and federal aid. FAFSA stands for the Free Application for Federal Student Aid. Notice the first word free? You should NEVER pay to complete this form.
To ensure you are completing the correct form, always access it through the Federal Student Aid website. The form for the 2015-2016 school year will be available January 1, 2015, but you should set up your PIN and browse the FAQ section well before you begin the process. Your child will need to submit a new form each year he or she is in college, so by the time graduation rolls around, you’ll be an expert at it!
Regardless of your family’s financial status, I encourage you to complete the FAFSA every year. It really does open up doors to not only need-based financial aid, but also other forms of financial assistance. Many colleges require the FAFSA to be completed even if your child is only eligible for merit-based scholarships or other institutional awards.
If your child is attending college for the first time next fall, be sure to complete it as soon as possible, as some forms of financial aid are awarded on a first-come, first-served basis. It may seem daunting at first, but there are often free workshops offered through local high schools to help you complete the form. If you still find you have questions about the process, check out the FAFSA website’s help section. You can call, online chat, or email questions for a quick response.
Finally, the FAFSA is also the application for federal student loans. Direct Student Loans are available to students regardless of financial need, but you can’t receive this loan without first filing the FAFSA. Parents can utilize the the Direct PLUS for Parents as an option to finance college costs. While there is a credit check, financial need is not necessary to receive this loan.
CSS/Financial Aid PROFILE®
Nealry 400 private colleges require the CSS/Financial Aid PROFILE® in addition to the FAFSA, but it is not used to determine federal financial aid eligibility. Instead, this extensive form is used to determine a student’s eligibility for non-federal aid such as institutional assistance (money from the school), and considers other sources of income, such as: life insurance plans, home equity, and even assets held by a non-custodial parent.
But that doesn’t mean all assets are considered when calculating your child’s financial aid package. Each college has its own formula for determining need. Unlike the FAFSA, the CSS/Financial Aid PROFILE® is not free. The form is available beginning October 1 each year, and costs $25 for the first school your child applies to and $16 for each additional application submitted, unless your child qualifies for a fee waiver. Check with your high school’s guidance office about receiving the necessary form to request a waiver.
Don’t worry. Everyone who completes the FAFSA will get a SAR, and it’s not contagious. SAR actually stands for Student Aid Report and it’s an important piece of the financial aid puzzle. You may receive your SAR by email or paper, depending on whether or not you provided an email address when you completed the FAFSA.
Once you receive your SAR (anywhere from three days to three weeks after completing the FAFSA), be sure to review it for errors and make any necessary corrections. The information contained in this report is used by colleges to determine your child’s eligibility for federal and institutional financial aid. The SAR will also include useful information about your general eligibility for federal student aid.
Your family’s EFC, otherwise known as Expected Family Contribution, is perhaps one of the most frustrating terms to understand during the college financial aid process. This magic little number determines your child’s eligibility for federal student aid, including Pell Grants, federal work-study programs, and need-based federal student loans.
But don’t make the mistake of thinking your EFC is the amount of money the government expects you to contribute to your child’s college expenses. It’s simply a number colleges use to calculate how much financial aid your child can receive. For example, if your EFC is 2,000 and College A has a COA of $10,000, your child would be eligible for up to $8,000 in need-based financial aid.
When all is said and done, you could end up paying more or less than your EFC, depending on where your child enrolls in college. To learn more about how your EFC is calculated, check out the 2014-2015 EFC Formula Guide from Federal Student Aid website.
Have you ever purchased a car? If so, you know the sticker price rarely includes everything you’ll be paying for the vehicle. Well, determining a college’s Cost of Attendance (COA), is very similar.
Your COA not only includes the listed price of annual tuition and fees, but also other college expenses, such as: room and board (or living expenses, if your child stays off campus), books, supplies, transportation costs, costs related to a disability, eligible study-abroad programs, and other miscellaneous expenses.
Your cost of attendance will be different for each college, but don’t let those figures scare you. In some cases, a private college that appears more expensive up front may actually be as affordable as a public college, if you receive a substantial financial aid package to help reduce the costs.
Need help with other financial aid terms you are unfamiliar with? Check out our Student Loans & Financial Aid Glossary.