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How Colleges Calculate Your Financial Aid

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How do colleges figure out their financial aid awards? Here's a peek at what goes on behind the scenes.

Students who receive financial aid offers from several colleges are sometimes surprised to see how different these offers are from one another. However, these differences aren’t so surprising when you look at all the factors colleges consider when putting together a financial aid package.

Here are the main factors that go into financial aid calculations:

  • The college's official cost of attendance
  • The family's financial need
  • The formulas the college uses to calculate aid offers
  • The college's policies on providing aid

We’ll go over each of these factors in detail below.


Every college calculates an estimate of the cost to attend for one year, called the Cost of Attendance (COA). The COA usually includes housing, meals, tuition and fees, books and supplies, transportation, and personal expenses, and it may also be adjusted for on-campus vs. off-campus housing, specific major programs and other factors. The Cost of Attendance varies widely from college to college; but financial aid may make a college with a high COA more affordable than you think.


Financial need is an estimate of how much money a student needs to attend a particular college. Colleges determine your “financial need” by subtracting its Cost of Attendance (COA) from your Student Aid Index (SAI). The SAI is a number representing your and your family’s ability to pay for college and is determined by the information you provide on your Free Application for Federal Student Aid (FAFSA).

Because your SAI will be the same at every college, but each college will have a different COA, it’s likely that your financial need will be different at each college you apply to. For example, if your SAI is $15,000, and the college’s COA is $60,000, your financial need to attend that college would be $45,000. However, at another college with a COA of $20,000, your financial need would be only $5,000.


To qualify for government-supplied financial aid (Pell Grants, subsidized and unsubsidized student loans, and state grants), students must complete the FAFSA. The FAFSA form asks students — and usually their parents — for information about their income and assets. This information is processed through a federally mandated formula (sometimes called the FAFSA formula or federal methodology) to determine a student’s SAI.

Colleges allocate need-based aid from government sources using the FAFSA formula. Most colleges also use the FAFSA formula to allocate private scholarships and grants that are funded by the college. Some schools, however, use additional formulas to allocate aid from their own funds and ask students to complete additional financial aid forms, such as the CSS Profile. These formulas may consider more of a family's income and assets than the FAFSA and can result in a different SAI.


Once a college has an idea of a student’s “financial need,” it will come up with a financial aid package, usually containing a combination of loans, grants, scholarships and work-study. However, colleges follow different policies when they determine which types of aid to award, and how much. Here are some common policies you might encounter.

  • Gapping. Many families don't realize that colleges are not required to fully meet a student's financial need. In fact, many colleges follow a practice called “gapping”—where they meet only a portion of a student’s financial need and leave the student and their family to cover the “gap”. For example, a college may meet only 50 percent of any student’s demonstrated financial need. In this case, if your financial need is $30,000, the college would cover just 50 percent of that amount ($15,000) and you and your family would be responsible for paying the rest.
  • Gift aid generosity. Colleges offer different combinations of types of aid. They can offer gift aid (grants and scholarships), which reduce the cost of college and don’t require repayment. They can offer self-help aid (loans and/or work-study), which are meant to help students pay for college out of their own pockets or by working. The amount of gift aid can vary based on the college’s aid policies and how desirable the student is to the college.
  • Outside scholarships. If a student wins a scholarship from a source other than their college, their college must deduct that money from the student’s aid package. Based on its financial aid policies, the college may subtract the scholarship from the student’s gift aid, self-help aid, or a combination of both.

Although you might feel overjoyed when you receive a financial aid offer from a college, you might find the award letter confusing. If you don’t understand any part of a financial aid award letter, ask for help from a parent or guardian, your high school counselor, or contact your admissions rep or a financial aid officer at the college. Be sure to review each offer carefully and make sure that you understand exactly what you and your family will be expected to pay.

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