Financial aid basics

Financial Aid Eligibility

[Excerpted from’s Family Guide to College Savings]

Three basic ingredients determine how much need-based aid your child is eligible for.

  1. The cost of the school your child is considering or already attending. Every school calculates its "cost of attendance" or "COA" based on federal guidelines. As you might expect, many private colleges have a high COA while public universities and colleges have a relatively low COA for state residents.
  2. The dollar amount of "resources" provided to the student from outside sources. Scholarships, for example, are considered a resource. So are payments of tuition directly to the college by a grandparent or employer. A resource will reduce the COA, and therefore the need-based aid award, on a dollar-for-dollar basis.
  3. The "expected family contribution" or "EFC." This is the amount your family will be expected to pay for college based on your particular financial circumstances. This figure is determined each school year by the federal government with data you provide on the Free Application for Federal Student Aid (FAFSA). The calculation considers the student's income and assets and the parent's income and assets. (For independent students, parental income and assets are excluded.) The parents' contribution is divided by the number of family members attending college at least half-time.

Assume, for example, that your child is planning to attend a private college costing $25,000 per year. Your expected family contribution is $15,000, consisting of the student's contribution of $2,000 and your contribution of $13,000. A local civic organization has awarded your child a $1,000 scholarship. Your child's financial need is determined to be $9,000 computed as follows:

1. Cost of attendance  
2. Expected family contribution
Student's contribution
$ 2,000
Parents' contribution
Total family contribution
3. Resources  
$ 1,000
4. Financial need = (1) - (2) - (3)  
$ 9,000

The school will attempt to put together an aid package that covers the $9,000 in need. This package can be a combination of grants, loans, and work-study from federal, state, and college sources.

Next:Financial Aid and Your Savings


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