Determining Your Financial Need

College is probably one of the larger investments you'll ever make, and nearly every student could use a hand paying for it. Here's a look at how financial aid-granting institutions determine your financial need.

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Determining Your Financial Need
Determining Your Financial Need

With college costs approaching the price of real estate, nearly every student can claim a need for financial aid. And most students do take advantage of the wide array of available grants and loans. In 2003-4, three quarters of all full-time undergraduates received some sort of financial aid, averaging $9900 per student. How much money are you entitled to?

To find out, you'll need to submit a FAFSA, the Free Application for Federal Student Aid. The Federal Student Aid program determines your financial need based on the information you provide in this form. Your income and assets, the size of your household, and if applicable, your parents' finances will determine your EFC, or Expected Family Contribution.

Your financial need is the difference between the cost of your education and your ability to pay for it, as estimated by the EFC. Since some schools cost significantly more than others--i.e. private schools--your financial need can vary widely from school to school. More expensive schools will net you a bigger financial aid award, so don't rule out a school based on tuition alone. Apply and evaluate the relative costs of different schools later--you might find that the bottom line looks much different after you take into account financial aid offers.

Behind the Scenes

The Federal Student Aid program and college financial aid offices evaluate your financial need based on the information you provide in the FAFSA. Your award amount largely depends on two figures: the Cost of Attendance and Expected Family Contribution (EFC). The Cost of Attendance figure represents the total cost of college attendance--not just tuition and fees, but also books, room and board, transportation, personal expenses, and supplies. The Expected Family Contribution (EFC) represents the total amount you and your family should be able to afford for college expenses. Funds permitting, your financial aid offer will make up the difference between the cost of your education and what you can pay. In other words, the award amount (your 'Estimated Need') is the Cost of Attendance minus the Expected Family Contribution (EFC).

What is 'Cost of Attendance'?

The 'Cost of Attendance' (COA) estimate covers all the direct and indirect educational expenses for the upcoming year at a particular school. Tuition is just the beginning; the COA also takes into account any application or other fees, living expenses, books and supplies, any transportation expenses, and personal expenses. 'Personal expenses' include miscellaneous necessities, such as the cost of a computer. When relevant, the COA also considers costs related to dependent care, disability, and approved study-abroad programs.

What is the 'Expected Family Contribution'?

The Expected Family Contribution (EFC) represents the amount that the Federal Student Aid program expects you and your family to contribute toward your college expenses in the coming year.

Your parents' finances may or may not figure into this calculation. If you qualify as an "independent" student, only your income and assets will apply; otherwise, you will be required to list your parents' financial data as well. Factors such as age, marital status, military service, and children determine your dependency status.

There are two different formulas used to determine eligibility for financial aid. The main "Federal Methodology" applies to federal, state, and some college aid. Public universities typically use this formula. Private universities and scholarship programs use the "Institutional Methodology" (IM) to calculate eligibility for their funds.

Both formulas take into account the basics:

• income
• assets
• number of family members
• number of family members in college

The Institutional Methodology incorporates some additional information, such as home equity and support from a non-custodial parent. It applies different formulas to some elements of your family finances, such as treatment of student assets and allowances for siblings in college. If your school asks you to submit a CSS Financial Aid profile, it will probably calculate your eligibility for its own grants based on the IM.

You'll find out your EFC when you receive your Student Aid Report (it's listed in the upper right hand corner). You can appeal the figure by consulting a financial aid officer. Grounds for appeal include a change in your family's financial means (such as unemployment), extraordinary medical expenses, or other special circumstances.

But wait…

Your financial need does not necessarily represent the amount you receive in financial aid. Often, there is a gap between what you need to cover expenses and the amount listed on your funding check. That's because there is a limited amount of financial aid available. When demand exceeds supply, college financial aid offices must decide who needs the funds most. If your family's financial circumstances are better than other applicants', then your award amount might be cut back. In this case, you'll need to bridge the gap by obtaining loans from other sources, cutting living expenses, or taking on a job.

Renewing your FAFSA

The Student Financial Aid program reevaluates your financial need every year. You'll fill out a new FAFSA annually, updating the financial data. Figures like your Estimated Family Contribution can change significantly from year to year, depending on your family's circumstances and the number of members in your household attending college.

College is a significant investment, and nearly all students can demonstrate a financial need. It's a good idea to apply for financial aid even if you think you don't qualify for a grant.

Sources:
College Board
CollegeNews.org
FAFSA
Federal Student Aid, Department of Education
FinAid.org
Glossary of Key Financial Aid Terms, NAFSA
National Center for Education Statistics
Peterson's
WorldWideLearn.com


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