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How Colleges Calculate Your Financial Aid

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Just how colleges figure out their financial aid offers can seem quite a mystery. Here's what's going on behind the scenes.

Once students receive all their aid award letters, many are surprised to see how different their offers are. But when you see all the things colleges consider when putting together your aid package, these differences aren't so surprising.

Factors that Go Into Aid Calculations

Every aid award offer is based on these factors:

  • 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

Cost of Attendance

Every college calculates an estimate of the cost to attend for one year, called the Cost of Attendance (COA). This cost usually includes housing, meals, tuition and fees, books and supplies, transportation, and personal expenses. The COA is adjusted for various situations such as on-campus vs. off-campus housing.

Financial Need

If the student is under 24, the college will consider the income and assets of both the student and parent and determine what the family can afford to pay for one year of college. This amount, called the Expected Family Contribution (EFC), is deducted from the COA to arrive at the amount of the student's financial need.

College Aid Calculations

Colleges allocate need-based aid from government sources using a standard formula. Most colleges use this same formula to allocate aid from their own coffers. But a significant number of private colleges use other formulas to award their own need-based aid. These formulas count more of the family's income and assets and can result in a different expected family contribution (EFC) than one calculated using the government formula.

College Financial Aid Policies

  • Gapping. Many families don't realize that colleges are not required to fully meet a student's need. And most colleges do not. This practice, called "gapping," is common.
  • 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 they can offer self-help aid (loans and/or work-study), which simply help the family pay for college out of their own pockets. Most colleges award a combination of aid types, but the amount of gift aid can vary based on how desirable the student is to the college.
  • Outside scholarships. If the student wins a scholarship or other award outside the college, the college must deduct that money from the aid package. But they can choose whether to reduce gift aid, self-help aid, or a combination of both.
  • Source of the aid. Aid from government sources is allocated using the FAFSA formula. Most colleges use this same formula to allocate aid from their own coffers. But roughly 260 schools use the CSS Profile formula to award their own aid. The CSS Profile takes a closer look at a family's financial picture and counts assets, such as home equity, that the FAFSA ignores.

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