Financial Aid

The financial aid equation

You can run but you cannot hide. It’s time to face the finances.

Before you get into the details of how and when to apply, it’s important to have some basic understanding of how the system works. I promise that it’s not as gruesome as you fear. In fact, the underlying principle upon which the financial aid system is based is surprisingly simple:

Cost of Attendance minus Expected Family Contribution = Your Financial Need

Your financial need is calculated by subtracting your Expected Family Contribution from the Total Cost of Attendance.

Looks simple, now for the English translation.

COA = Cost of Attendance, or what it costs to go to a particular school. Cost of Attendance has two main parts: hard costs and soft costs.

Hard costs + Soft costs = Cost of Attendance (COA)

The hard costs are the fixed charges like tuition, fees, room and board (or T,F,R,B). You can look on virtually every school’s website and find these hard costs in mere minutes.

The soft costs are other expenses you will incur but which vary from student to student. These include books, supplies, travel, and personal expenses. Because these amounts vary widely, schools pick an average amount to use. For most students and schools, it’s safe to use a figure in the $1500 per year neighborhood. If you know you’re traveling across the country for college, you may want to factor in higher costs for a lot of travel. But, at this point, it’s more important for you to understand the concept than the specific soft cost amount.

It is the college’s job to prepare your financial aid package; however, it is important to know that they are under no obligation to meet all of your financial need. So, the first step in evaluating financial aid packages is to determine who gives you the most money?

Do not, however, stop there. Even if the amount of money is the same from different schools, the kind of aid you receive may be different in each package.

Optimizing gift aid is often the best option for families that are looking to spend the least amount out of pocket or in loans for college.


There are 2 main categories of financial aid that a college will offer your family:

  1. Gift Aid

This includes: Scholarships which are based on some talent or academic performance and Grants (a need-based gift based on FAFSA results).Many families think that outside scholarships are where they can get the most money to pay for college, but the reality is that the huge majority of “free” money for college comes from federal programs and gift aid provided by the college itself. This is extremely important.

2. Self Help

This includes loans—money that is borrowed and must be repaid—and work options (like work study programs and other campus jobs).

Obviously, optimizing gift aid is ideal, because it’s “free” money to you.

The only strings attached to this money are that you may have to maintain a certain GPA or participate in an activity for which the money was intended.

Gift aid may not cover enough of the college costs to allow you to foot the bill (that would be what is known as a “full-ride”), so some self help aid may be a realistic necessity. The good news is that funds earmarked for college loans are often much more favorable than that available to the non-student and federal loan programs offer low interest rates and different repayment and forgiveness programs that a student may be eligible for after graduation.

Look past the total amount of aid and examine exactly how much of your financial aid package is made up of gift aid and how much is loans or work programs that you’ll need to either repay or earn through a paycheck.

You can find a financial aid award letter comparison tool to help you compare your actual financial aid award letters on the College Board’s website.

Understanding and comparing your college financial aid award letters

You work feverishly to ensure that you file your financial aid applications by the all-important deadlines, and then you…hurry up and wait.

Weeks later, you will receive financial aid packages from all of the schools to which you’ve submitted the requisite paperwork and to which you’ve been accepted. With any luck, the amount of financial aid you are offered will be just one variable in making a decision about where you will attend college, albeit a very important one for many families.

Your next job is to compare these packages so that you understand both the bottom line and the desirability of the component parts of the financial aid package.