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How Colleges Award Financial Aid


The arrival of a financial aid award letter can be a big deal—almost as big a deal as a college decision letter. Here's how colleges put together those anxiously awaited aid packages.When it comes to choosing a college, "affordable" is an important quality to just about everyone. The amounts and types of aid colleges award can greatly impact your ultimate college cost—and your ultimate college choice.

First, Colleges Figure Your Family's Contribution

When colleges figure your financial aid, the first number they consider is your Expected Family Contribution (EFC). Your EFC is what colleges expect you and your parents to pay for college. All colleges use an EFC calculated by the government based on information from your Free Application for Federal Student Aid (FAFSA).

Some private colleges use an additional EFC calculation derived from the CSS/Financial Aid PROFILE form. The CSS formula considers more factors, such as home equity and income from stepparents and noncustodial parents. Colleges use the PROFILE to determine aid awards from the college's own resources.

Next, Colleges Figure How Much Aid You Need

The next figure colleges consider is the college's official cost of attendance (COA), which is the cost to attend for one year. The COA should include tuition, fees, books, supplies, housing, meals, local transportation, and miscellaneous personal and educational expenses. The college subtracts your EFC from the COA to calculate the amount of your financial need.

They Look at Aid Based on Your Need

Colleges then consider different types of aid to meet your financial need. The options boil down to gift aid (scholarships and grants) and self-help aid (student loans and work-study earnings). Since you have to repay loans and you have to work to earn work-study awards, gift aid is always more desirable. Only gift aid reduces the net price of a college, which is the amount you and your family actually pay out of pocket.

They Look at Aid Based on Your "Merit"

Many colleges offer a type of gift aid called merit aid, which they award based on the value a student brings to the college. Colleges offer it to attract students whose grades are at the top of the application pool, or who have a talent or other quality the college seeks. If you receive merit aid, it will count toward meeting your financial need, just like any form of financial aid.

Then They Build Your Aid Package According to Their Policies

Colleges combine the different types of gift aid and self-help aid when they create aid packages. Each college allocates aid differently, however, according to its policies. Below are a few examples of how such policies can affect your ultimate college net price.

  • Some colleges leave a "gap" of unmet need. A family will have to cover this gap along with its EFC. This practice allows a college to use its limited aid resources to provide aid to a larger group of students and to award more gift aid to students it wants to enroll.

  • Some colleges use aid to encourage students to commit. Using a strategy called "preferential packaging," desirable students may get aid offers that fully meet their need, with a high proportion of grants and scholarships. Other students may get loan-heavy packages and less of their need met.

  • Some colleges award loans and work-study first, then gift aid. Other colleges award grants and scholarships before self-help aid, keeping loans to a minimum.

  • Many colleges award more gift aid to students who file early and meet financial aid filing deadlines. They offer more loans to students who file for aid later in the admission cycle, after the gift aid has been used up.

  • The outside scholarship policy can affect your package. By law, colleges are required to reduce your financial need by the amount of any college money that you receive from scholarship sources outside the college. Some colleges will reduce gift aid first. Others will reduce gift aid only after all self-help aid has been subtracted.

A college's aid packaging policies might seem like a well-kept secret, but you can learn about them by visiting its financial aid web pages or calling the financial aid office.

If an Aid Package Falls Short

If you are disappointed with your aid offer, you and your parents can appeal to the college. For example, you can ask for a recalculation based on information the officers don't have. A parent may have lost a job or entered information incorrectly on the aid application. All colleges have an appeal process—you just need to ask.

What's Next?

  • Use College Match to look up a college and see its financial aid track record.

  • Learn how to appeal a financial aid award.

  • Find Financially Friendly Colleges—ones likely to offer generous aid.

Note: Financial information provided on this site is of a general nature and may not apply to your situation. Contact a financial or tax advisor before acting on such information.

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