College Funding & Financial Aid
College financial aid, or college funding as it is more commonly referred, is defined as all monies that are provided to the student and make up the difference between the college’s advertised cost of attendance and the amount the family pays from their own resources.
College funding can be made up of grants, scholarships, fellowships, tuition reductions or discounts, federal work-study jobs, as well as, student and parent loan programs.
The Keys to How It All Works …
2 Types of Funding
Gift Aid – This can include scholarships, endowment awards, tuition waivers, tuition discounts, and grants. As the name implies, gift aid does not have to be paid back. The colleges use many names for the gift aid they offer to students, but they are really all just a discount off of the school’s sticker price. There are basically two ways to pay for college – with your money or with someone else’s.
Self-Help Aid – This includes monies that the student either has to work for or is borrowed and must be paid back. Student loans, parent loans, campus employment, and Federal Work Study Programs are all considered self-help aid.
3 Funding Sources
Federal & State Governments – PELL and SEOG grant programs are sponsored by the federal government and are need-based aid programs for lower income families. Many states offer grant programs based upon academic performance by the student while in high school. Most of these programs require the student to maintain a minimum grade point average (GPA) while in high school to receive the grant and then maintain a minimum GPA while in college to renew the grant. Students are typically required to attend a public, in-state college to benefit from these state grant programs.
Colleges – The colleges are the largest source of gift aid. The colleges are also responsible for distributing the federal financial aid funds that are allocated to the college by the government. Colleges use their funding to attract the students that they feel will bring them the best return on their investment.
The Private Sector – Wal-Mart, Coca-Cola, Visa, the local Elks Club, The Rotary Club, etc. are all sources of private sector scholarship money. Although many families believe private sector scholarships are the best way to offset the costs of college, the reality is that only 3% of the gift aid awarded each year comes from private sector scholarships.
Need Based vs. Merit Based Aid
Need Based Aid – The Federal Government, and more importantly, the colleges assess “need” by considering the total cost of attendance, minus what they have estimated the family can afford. This determination is made through a federally mandated formula, which primarily considers the family’s income and assets. The Federal Methodology (FM) formula is administered through the Free Application for Federal Student Aid (FAFSA), and ultimately produces the Expected Family Contribution, or EFC. The EFC is subtracted from the total cost of attendance to determine the student’s need. COA – EFC = Need
It’s important to know that the EFC remains constant from institution to institution, with the only major change being each schools cost of attendance. Given this, the more expensive the school, the higher the student’s need.
Merit Based Aid – With each institutions’ merit based aid programs, the EFC is most-often not considered. Merit based aid can include a variety of categories such as academic, artistic, athletic, etc., etc. Colleges often use the term scholarships when distributing these awards. Regardless of the label attached, these awards are basically a discount off the school’s total cost of attendance.
Summary – Colleges are allocated federal need based aid and are required to distribute it accordingly. Schools commonly use their own endowment funds (merit based aid) to discount their price and attract the students they would most like to enroll. This is why you now see schools offering funding to students from families with annual incomes in excess of $300,000. The old myth of “we make too much money” has become practically extinct.
FAFSA - Federal Methodology
The FAFSA is a financial aid application administered by the federal government, and is required from all students seeking financial aid for college. The window to complete the FAFSA opens October 1st each year. The FAFSA is an annual event after the initial completion in October of the student’s high school senior year.
Household Information Reported – Most high school seniors and college students working on their first bachelor’s degree are classified as dependent students (check dependency status). For these dependent students, both parent and student personal and financial data is reported on the FAFSA. The information reported is from the student’s current household only; which may include the student’s natural parents, or a combination of natural parent and step-parent.
Base Year – Answers pertaining to income given on the FAFSA are from the base year. For first time filers (generally high school seniors), this base year is defined as the twelve (12) month period beginning January 1st of the student’s high school sophomore year and ending December 31st of their junior year. For example, 2017 is the base year for the 2019 – 2020 college school year.
FSA ID – Securing an FSA ID for both the student and one parent whose information is included on the FAFSA is very important. FSA ID’s are not only used to sign for the original FAFSA, but may also be required for any FAFSA updates that may be necessary. Visit the FSA ID website to obtain your FSA ID’s.
Completing the Original FAFSA – It’s best to file the FAFSA as soon as possible after the filing window opens, which is October 1st. Early filing often puts the student at the front of the line and, in many cases, may make the student eligible for additional funding. Reporting base year (2017 is the base year for the 2019 – 2020 college school year, for example) income tax return figures and asset figures as of the day of filing is required. The FAFSA may be completed online.
Asset Positioning Strategies – The way parent and student assets are positioned and subsequently reported on the FAFSA can have a major impact on the amount and type of funding the student is eligible to receive. Although the very format of the application (free is actually included in the name of the form) would indicate that the process is easy and without pitfalls. That, unfortunately, is certainly not the case.
CSS/Profile - Institutional Methodology
In addition to the federal formula as administered through the FAFSA, roughly ten percent (10%) of colleges also use an Institutional Methodology (IM) formula to determine the family’s expected contribution. The IM formula is administered through the CSS/Profile, managed by the College Board.
Schools that use both the Federal and Institutional formulas typically consider the higher of the two EFC’s in their calculations for need based aid. These schools are typically the most selective and most expensive schools. They often have more money to give, they just want to know more regarding the family’s ability to contribute before they give it.
With the CSS/Profile, parameters for household information reported, base year, and the earliest date to file are the same as the FAFSA. That’s where, however, the overall similarity stops.
The CSS/Profile is a much more detailed version of the FAFSA that also considers additional assets, including the family’s home equity (the FAFSA does not), uses a different formula and a significantly steeper assessment rate – ultimately producing a different (often times higher) EFC.
The Funding Process
From the family’s point of view and due to the fact that up until now everything in the funding process has revolved around family income, assets, and how much they can contribute to the student’s education, you would think the Expected Family Contribution (EFC), that is arrived at by both the Federal and Institutional formulas, would be the amount the family is expected to contribute each year. It’s not. Even though it is named the ‘Expected Family Contribution’ it’s not actually what the family is ‘expected’ to contribute, but rather a piece of a much bigger, and much more detailed internal formula.
In essence, the entire FAFSA, CSS/Profile funding application process is designed for the colleges to accomplish a couple of very specific tasks. First, the institutions are gathering the personal and financial data of the student, parents, and family, with their interest revolving primarily around income and assets. Secondly, as a result of this process, the student’s eligibility for need-based (primarily government) funding is established.
Although need-based funding eligibility is certainly important; unfortunately, because so much emphasis is placed on what the family can contribute by the government and colleges, most families never fully understand the inner-workings of the overall process. Many, in fact most, associate the student being accepted for admission with the college ‘taking care of the student’ by providing maximum funding. This couldn’t be further from the truth. Families need to look beyond the FAFSA, CSS/Profile data gathering process that is presented to them and understand the real process. This is the only way families are able to most effectively lower their overall out-of-pocket college expenses.
Learn more by reviewing the Advanced Funding Formula details found in the Parents section of our site.
After the required admission and funding applications have been completed, the student has been accepted for admission, and the college’s admission and financial aid offices have reviewed the file and made their decision, the student’s formal offer of funding most often comes in the form of an Award Letter directly from the school.
Award Letters typically contain the school’s total cost of attendance (COA); along with funding being offered from both the institution and the federal government. Both gift aid and self-help aid are included. Please note that any private sector awards the student may have received are commonly not included with the original award letter. It is, however, the student’s responsibility to notify the school of any private sector award(s) they received. It is also important to make sure the private sector award is not deducted from the gift aid the college already awarded.
In many cases, the original offer of funding (Award Letter) may be appealed, which is essentially a request for additional funding. Generally, there are two circumstances where appealing would be appropriate:
- The student is offered less gift aid than the institution would typically offer based on the student’s achievements and the institutions history of awarded funding.
- The family has special circumstances that the institution is not aware of such as dramatic changes in the family’s financial condition, larger than average family expenses, family size increases, parent retires, and/or the student’s class rank or test scores have increased since the original application was submitted.
Foundation for the Appeal – With instance one (less gift aid than the institution would typically offer), in order for the school to entertain the idea of awarding additional funding, the foundation must have first been set by the student doing all they could to make themselves as attractive to the college as possible. Without this preparation, an appeal simply because the school’s offer is lower than anticipated has no real merit and very little chance for a positive outcome for the student / family. On the other hand, if the student has done the prep work and is an attractive candidate, appealing for additional funding based on a low original offer is often-times very effective.
In most cases, the college funding applications that are reviewed by each institution’s Financial Aid Officer (FAO) simply ask questions and have very little room for explanation. The FAO does not know if there was information that was not completely explained on the FAFSA (credit card debt, excessive medical expenses, etc.).
In addition, the FAO does not know if there have been dramatic changes in the family’s financial situation and/or lifestyle since the time the original applications were completed and submitted.
Previously unreported information is commonly called a “Special Circumstance” and can have a major influence on the amount and type of funding the student is offered. All applicable Special Circumstances should be reported to each institution’s FAO.