If your child will be going off to college one day, you may be wondering how to qualify for financial aid.
There are two types of financial aid students can get for higher education: need-based aid and merit aid.
Need based aid is tied to your family’s economic circumstances, and it takes into account factors such as your income, savings and personal assets.
Merit-based aid is derived based on personal accomplishments, such as high test scores, a stellar GPA, special talents or unique skills. Organizations granting merit aid may or may not take financial considerations into account when deciding whom to fund.
Regardless of the type of funding your family seeks, the first step you should take to qualify for financial aid is to fill out a form known as the FAFSA, the Free Application for Federal Student Aid.
The FAFSA is the all-important document that determines something called your EFC or “expected family contribution.” This is the amount of money you’re supposed to contribute to your child’s education.
To get the most possible financial aid, you want your EFC to be as low as possible.
A lot of factors go into calculating your EFC, which are beyond the scope of this article. But there are some pointers you should know in order to get the biggest possible financial aid award.
What is the Real Definition of Financial Aid?
First, you obviously want your child’s financial aid award package to be comprised mostly of free aid, such as grants, scholarships and other institutional funds that don’t have to be repaid. Students in the top 10% or even top 25% of a college’s student body are more likely to get these funds. So simply encouraging your child to be a really good student can help your family qualify for institutional/merit aid.
But realize that the government and most colleges and universities consider loans to be “financial aid” as well. Yes, it’s borrowed money and yes students (or parents) do have to repay student loans. But they’re deemed to be “aid” to you nonetheless.
Ditto for “work study” – which is awarded to students who work on campus and get funds to put toward their higher education expenses. Since students have to actually work to earn work-study funds, it’s not “free” money with no strings attached; but it’s considered “aid” as well.
For the purpose of this article, we’ll focus now on need-based aid, most of which comes from the federal government, or a college or university.
To keep your EFC low and maximize a student’s ability to qualify for free financial aid, you need to know several things.
Know how the school determines your need
Some schools promise to meet your full economic “need.” These campuses want students to be able to afford to come to their schools if the students are admitted. Unfortunately, there’s no standard way that all schools calculate a family’s need. What you see as being “need” and what the schools deem to be “need” could be two different things.
But some families are surprised to discover that they may have financial “need” even if a student’s parents are collectively earning six figures.
For instance, many Ivy League schools, as well as other top institutions with large endowments offer many, many thousands of dollars in aid to families earning $180,000 or less. Harvard’s policy is that a family at the $180,000 level will pay no more than 10% of its income. Those earning $60,000 or less pay nothing at Harvard. Families in between those income ranges pay between 1% and 9% of their income annually. Princeton has a “no loan” pledge. It guarantees that it will meet 100% of a family’s need with free institutional funds, not student loans. Such a policy greatly reduces student loan burden for families.
Clearly, most schools don’t have the resources to emulate Harvard and Princeton. Nevertheless, many colleges and universities promise to meet the full need of accepted students who submit their financial aid applications by certain cutoff dates.
Know what the college includes or excludes when stating its costs
Some schools lay out multiple categories of costs in declaring their total price tag. These costs include tuition, fees, room and board, books and supplies, travel, personal expenses and other miscellaneous costs.
But not every school is fully transparent in outlining costs. Some institutions use small or conservative numbers, or simply omit all categories beyond tuition, fees, room and board.
Once you know a school’s total cost of attendance, you can take that figure and subtract your expected family contribution from it to get your total “need.”
In other words, if a school’s total cost of attendance is $40,000, and your EFC is $10,000, then your “need” would be $30,000. A great financial aid package would cover most of that need with grants or scholarships. If it doesn’t, you’ll have “unmet need” and will have to consider loans or other financial options.
Know how your college counts home equity in a school’s formulas
Certain institutions count home equity in their own financial aid formulas; others don’t. Ask your school to know for sure. If home equity doesn’t count, some families pay down their mortgage balances in order to diminish cash assets on hand at the time they fill out the FAFSA and other forms, such as the CSS Profile, which some schools require. Reducing cash assets and available savings may help families qualify for more financial aid.
Know how the college considers divorced parents
Lots of students come from divorced homes. So it’s also important to know whether a school looks at both parents’ incomes, at any stepparents’ incomes, or just the custodial parent’s income.
Among institutions using the FAFSA exclusively, they take into account the custodial parent’s income and a stepparent’s income when the parent has remarried.
To help maximize your financial aid, remember a few other tips.
- Never, ever miss a deadline
- Put assets in the parent’s name, not the student’s name (this helps boost your financial aid award)
- Don’t rule out “expensive” private or public schools based solely on the sticker price of tuition, fees, room and board (many top-tier institutions with big endowments often give the most free money, so your net cost is lower)
Financial aid starts and ends with that FAFSA I mentioned. Even if you want to get scholarships or merit-based aid, a FAFSA form is often required.
So a final word to the wise: college funding from many sources often works on a “first-come, first served” basis. To qualify for the most possible financial aid, get scholarship applications, as well as the FAFSA, in as early as possible. With the FAFSA, try to submit it in the month of January.