There are two types of financial assistance a student may receive when applying to colleges: Financial Aid and Merit Aid. A college’s Financial Aid Office administers financial aid and their Admissions Office gives out Merit Aid. Below is an explanation, as well as tips for avoiding common mistakes.
Need-based financial aid includes grants, scholarships, work study and student loans. Of those four, you must repay student loans only.
HOW TO CALCULATE YOUR FINANCIAL NEED
Every student’s financial need is unique and is calculated as follows:
Cost of Attendance (COA) - Expected Family Contribution (EFC) = Financial Need
Financial need - Resources of Student = Adjusted Financial Need
EFC
The EFC is a number used by colleges to determine the amount you are expected to pay for college with your own money.
It is based on student and parent financial information.
Two financial aid forms can be used to calculate it: FAFSA (Free Application for Federal Student Aid) or the CSS Profile (College Scholarship Service Profile). You need to determine which form(s) are required by each of your schools.
There are multiple methodologies to calculate EFC as described below.
FAFSA
The FAFSA EFC is used by every accredited college in the United States to determine how much federal money can be disbursed by the college to cover the student’s COA.
The FAFSA uses a “Federal” methodology to determine the EFC.
When you file your FAFSA your EFC is computed and reported on the Student Aid Report. College Financial Aid Officers receive this report and subtracts your EFC result from the COA for the respective college.
CSS PROFILE
This form is used by some private colleges and a few public schools. It takes a closer look at the family’s financial situation using an “Institutional” methodology. The College Board determines the Institutional Formula and makes annual changes to it. CSS Schools can and do vary how they calculate their formula based upon their respective financial aid policies/practices. The Institutional EFC uses additional financial considerations such as a family home, family farm, and other assessed items.
As a general rule, the Institutional EFC will be higher than the Federal EFC (but not always!).
It’s important to estimate your EFC using both the Federal and Institutional formulas.
Ideally you want get your EFC as low as possible before Freshman year of college to qualify for as much aid as possible.
NOTES AND MISTAKES TO AVOID
Parent assets vs Student assets
Any account owned jointly in both the Parent and Student’s name is reported as a Parent asset, which beneficially lowers the EFC.
Asset solely in the student’s name – the calculations determine a higher EFC, and therefore a lower financial need.
By IRS rules, 529 accounts are reported as a Parent asset, which decreases the EFC.
A grandparent 529 is considered a grandparent asset (not a Parent or Student asset) and is therefore NOT reported on the FAFSA.
Prior to the class of 2024, if you use the grandparent 529 to pay freshman year tuition, it is considered Student income.
After the class of 2024, it is no longer considered student income.
Retirement Accounts:
Do NOT report them as an asset.
These are NOT included in the EFC calculations, and treating them as an asset by mistake will only detrimentally increase your EFC.
Debt (mortgages, loans)
Colleges do NOT consider your debt in calculating EFC.
Home value:
FAFSA doesn’t ask for the value of your home.
CSS Profile does take your home’s value into consideration.
Income:
You will use your tax return from two years prior to the student’s high school graduation to determine income. For example, if the student graduates in 2023, your tax returns from 2021 will be used.
The parent’s income from line 11 (AGI) on the 1040 form will be used.
The CSS Profile requires your full tax returns so that the colleges can see how you calculate your AGI.
Special Circumstances:
If you have a special circumstance that you think affects your financial need, there is nowhere to report it on these forms.
You will need to be proactive and contact each school’s Financial Aid Office to discuss it.
IMPORTANT TIPS
Every year you will need to re-submit these forms to apply for financial aid.
Try to get as much financial need money as you can Freshman year. That is your baseline year and schools predict that they will have to give you that same amount each subsequent year - though not guaranteed.
If your income increases, you can expect your financial aid to decrease.
If you make a mistake when reporting your financial information, it is up to you to contact each school to try to fix the problem. They will not see the mistake and fix it on their own.
Consider schools on the lower end of the tuition range to maximize your savings.
Consider Honor Programs within a public school for greater value at possibly a cheaper price.
Divorce/Separations: If both parents are living in different houses, the student is required to report on the FAFSA the financial information of only the Custodial parent. The CSS Profile wants the information from both parents.
COMPLETING THE FAFSA
It is best to submit the FAFSA in October to ensure you won’t miss any deadlines.
You need to create two Federal Student Aid accounts, FSA ID (ie: usernames/passwords): one for the parents, one for the student. Log into the Student account to complete the FAFSA. Log into the Parent account to sign the form.
On the FAFSA, you can apply for aid from only 10 schools at each submission. After you receive confirmation that your first submission was received (usually within 48 hours), go back into the form, replace those first 10 schools with the remaining schools and resubmit.
COMPLETING THE CSS PROFILE
This form is more complex and takes much longer to complete. Plan accordingly.
Check your school’s submission deadlines.
To identify where your student will be eligible for these scholarships, visit the school’s Admissions websites. Many publish the academic requirements needed.
Ivy League schools and the New England conference of schools, NESCAC, do not give out merit aid.
85% of schools automatically consider a student for Merit Aid without the use of additional forms. Some colleges require completion of the FAFSA to receive it. Check your school’s requirements.
The amount of aid is determined on a school-by-school basis. Some schools are more generous than others.
Check submission deadlines for Merit Aid. Sometimes it is sooner than expected.