College Financial Aid’s Basic Terms

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For the past several months, seniors and their parents all over the country have been waiting expectantly, hoping to see acceptance envelopes in the mail each afternoon. Hopefully, if you are a senior or the parent of a senior, you have received one or more of those envelopes and, more importantly, they have been from the right schools. However, as many families find out at this time of year, getting in is just half the struggle when it comes to college. Paying for an education is often just as difficult, just as confusing, and more emotionally trying. To help you navigate the process, here is a brief guide to financial aid explaining some of the common terms you are likely to hear:

FAFSA (Free Application for Federal Student Aid)

If you are a parent of a senior planning to attend college in 2014, you have probably already filled out the FAFSA form. If not, make it a priority since it is a requirement for many types of financial aid. A completed FAFSA is necessary to receive Stafford and Federal Perkins Loans and Pell Grants and to participate in the Federal Work-Study Program. Many colleges and universities, particularly public institutions, also require the FAFSA for financial aid to be received.

EFC (Expected Family Contribution)

The EFC is an estimate of your family’s financial strength and is calculated using the FAFSA according to a formula established by law. Taxed and untaxed income, assets, and benefits as well as family size and number of family members attending college are all considered. The EFC is an estimate of how much your family can contribute each year to your or your child’s education and is used by schools to determine both federal student aid eligibility and total financial aid award. Keep in mind that your personal estimate and a school’s are likely to differ.


One of the best types of financial aid, scholarships are often divided into two types: merit-based and need-based. Merit-based scholarships are awarded in recognition of a student’s academic, artistic, athletic, or other accomplishments and often take into account extracurricular activities, standardized test scores, and community service. Need-based scholarships are awarded based on demonstrated need by an admitted student, most often calculated using the FAFSA. When evaluating financial aid packages, pay close attention to scholarship awards. Are they a one-year award for the freshman year or are they renewable over four? Many schools will frontload financial aid packages which make the offers enticing to new students but often leave them searching for funding when freshman scholarships are not renewed.


Like scholarships, grants are essentially free money – financial aid that does not have to be repaid. As a result, they are also excellent options when it comes to financial aid and are most often need-based. Of particular note is the Federal Pell Grant which is awarded to undergraduate students who demonstrate need and have not earned a bachelor’s or professional degree.

Federal Work-Study Programs

Though not quite the free money of scholarships and grants, a work-study program is also a great option for students with need. By actually earning the money, students are not left with debt when they graduate. In addition, work-study programs are the most flexible type of employment a student can have. They are designed around students and with their schedules in mind, making it relatively easy to maintain both school and work.


Unlike all other forms of financial aid, loans must be paid back which should make anyone hesitate when accepting them as part of a financial aid package. Make sure you ask yourself if the education being received is worth the cost. I often tell clients that if you can get 90% of the education for 50% of the cost at another institution, that is usually a good decision. If you do accept a loan, pay attention to whether it is subsidized or unsubsidized. Subsidized loans do not require that a student pay back the interest earned on them over the duration of the loan whereas unsubsidized loans do, making them more costly to pay back after graduation.

I hope this information has been helpful to you. If you have any particular questions or would like some help evaluating financial aid offers, please feel free to contact us at We will be glad to schedule a time to meet with you.