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 college quality to just about everyone. The amounts and types of financial aid you get can make a big impact on your ultimate college cost—and upon your ultimate college choice.
Figuring Your Family's Contribution
When colleges start to 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 you provide on your Free Application for Federal Student Aid (FAFSA).
Some private colleges use an additional EFC calculation derived from the CSS/Financial Aid PROFILE, a separate financial aid form. The PROFILE considers more factors in its formula, such as home equity and income from stepparents and noncustodial parents. Colleges that use the EFC derived from the PROFILE use it to determine aid awards from the college's own resources.
Figuring 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.
Looking 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.
Looking at Aid Based on Your "Merit"
To attract desirable students, many colleges also consider offering "merit aid." Merit aid is primarily based upon the value you bring to the college, not upon your financial need. It is offered as gift aid to students whose grades are at the top of the application pool, or who have a talent or other quality the college seeks. At some schools you will be automatically considered for merit aid and at others you will have to apply for it. If awarded to you, it may appear in your aid package or you may be notified separately. Not all colleges offer merit aid, however. Some of the most selective colleges award only need-based aid.
Building the Aid Package
Colleges combine the different types of gift aid and self-help aid to 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.
- One common practice, called "gapping," means the college does not fully meet your need. This leaves a "gap" of unmet need that a family has to cover 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.
- Colleges can 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.
- The order in which aid is allocated affects the quality of the package. For example, some colleges award loans and work-study first, then award gift aid to cover remaining need. Other colleges award grants and scholarships before self-help aid, keeping loans to a minimum.
- Colleges with "deep pockets" from large endowments can be particularly generous. These colleges may be generous with merit aid or they may offer lots of need-based gift aid, even to families with middle-class incomes. Some such colleges have a "no-loan" policy for families making less than a certain income.
- When you file for aid can matter. Many colleges award more gift aid to students who file early in the admission cycle 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. Colleges are required to reduce your financial need by the amount of any scholarships and grants awarded to you by sponsors outside the college. Aid may be reduced as a result. 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 receive an aid package from a college you want to attend, but you are disappointed with the 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.
It takes some detective work to anticipate what kind of aid package a college might offer you. One resource is College Match, which you can use to look up a college and see its financial aid track record. You'll see the average percentage of need met by a college, the average size of its need-based and merit-based gifts, and much more.
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.