Do not assume your family makes too much money to qualify for college financial aid, free money or a foundation grant. Many schools are willing to offer funding to students from families with annual earnings in excess of $300,000.
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College Financial Aid (College Funding)
College financial aid, or college funding as it is more commonly referred, is defined as all monies that are provided to the student and make up the difference between the college’s advertised cost of attendance and the amount the family pays from their own resources. College funding can be made up of grants, scholarships, fellowships, tuition reductions or discounts, federal work-study jobs, as well as, student and parent loan programs.
The most important factor in obtaining financial aid for college is for the student and parents to have a complete understanding of the process (including the real funding sources and how best to access them), do the necessary research (from the family’s perspective), devise a plan, and stay on track.
Although financial aid was originally designed to go to those who needed it the most, it usually goes to those who know the most about the process.
Keep in mind that although some financial aid (Federal PELL and SEOG grants, for example) is geared towards lower income families, college funding as a whole is not a charitable operation but rather a strategic tool used by colleges and universities to attract the students they would most like to enroll. Nowadays, many institutions are willing to offer financial aid to families with much higher than average annual earnings. Visit our Inside Track Data Center for more details.
College Funding, Types, Sources and Categories
Funding for college comes from three basic sources:
- Federal government
- Colleges and universities
- Private sector scholarships
The federal government and the institutions make up approximately ninety-seven percent (97%) of all college funding awarded annually, where as the private sector ONLY comprises the remaining three percent (3%). Private sector money includes scholarships from clubs, organizations, foundations, etc.
There are two basic types of college financial aid:
- Gift aid; money that is given and not repaid
- Self-help aid; money that is either worked for or borrowed
A great many financial aid packages will have a combination of both gift aid and self-help aid.
There are also two basic categories of college funding:
- Need based; financial need must be demonstrated
- Merit based; accomplishments, not financial need, are considered
Most all financial aid requires that the student be enrolled at least halftime and are generally restricted to United States citizens, permanent residents, or eligible non-citizens. In addition, if you are a male United States citizen, eighteen years or older, you must be registered with the Selective Service in order to receive federal financial aid. You may also be disqualified for federal funding programs if you are, or have been, convicted of a drug-related crime.
The College Financial Aid Process
Free Application for Federal Student Aid (FAFSA)
The FAFSA is the federal government’s financial aid application and is a mandatory requirement from any student seeking financial aid for college. The window to complete the FAFSA opens October 1st each year. The FAFSA is an annual event after the initial completion in October of the student’s high school senior year. Due to the fact that funding for college is secured one year at a time, the FAFSA is filed annually.
The FAFSA helps determine how much the family should contribute towards the cost of the student’s education each year. This amount is called the Expected Family Contribution, or EFC. The Federal Government uses a formula called “Federal Methodology” to determine the family’s EFC.
Factors Involved in the Federal Methodology Formula
Income and Related Data – The parent’s and student’s Adjusted Gross Income (AGI) are factored into the FAFSA formula. The number of people in the student’s household, the number of students in the family that will be attending college during the year, the amount of Federal income taxes paid, and amounts contributed to retirement plans are just a few examples of other factors involved in the formula. Adjusted Gross Income effects the EFC much like earned wages and miscellaneous income effect Federal income taxes.
Assets – It is important to know that there are assets that are assessable (counted) and those that are not assessable (not counted) in the Federal Methodology Formula. These non-assessable assets can be equated to a tax deduction on your Federal Income Tax Return. By positioning as many assets as possible into the non-assessable column, your family’s EFC will often be lowered.
Your FAFSA may be completed online.
Secure an FSA ID to help with the completion of your FAFSA.
Answers given on the FAFSA are from the base year. For first time filers (generally high school seniors), this base year is defined as the twelve (12) month period beginning January 1st of the student’s high school sophomore year and ending December 31st of their junior year. 2016 is the base year for the 2018 – 2019 college school year, for example.
Most high school seniors and college students working on their first bachelor’s degree are classified as dependent students (check dependency status). For these dependent students, both parent and student personal and financial data is reported on the FAFSA. The information reported is from the student’s current household only; which may include the student’s natural parents, or a combination of natural parent and step-parent.
Income and related tax data from the base year are reported on the FAFSA.
Asset figures must be reported as of the day the FAFSA is completed and submitted. Asset figures may not be adjusted after the original FAFSA has been filed.
Tip – Be cautious when completing your FAFSA; mistakes are easily made that could be costly and ultimately result in forfeited financial aid eligibility.
Student Aid Report
Once your FAFSA has been processed by the Department of Education, the results will come to you in the form of a Student Aid Report (SAR). A paper version of the SAR will be mailed to you unless you included an email address when completing your FAFSA; if so, an electronic version of your SAR will be sent to the email address you listed.
Your SAR will contain three categories of information:
- Answers given on your FAFSA
- Colleges you listed to receive the personal and financial data
- Your Expected Family Contribution (EFC); federal methodology
Checking the data contained in your SAR for accuracy is a good idea; comparing the answers to those you reported on your original FAFSA.
Institutional Student Information Report (ISIR)
Each college and/or university that you listed on your FAFSA automatically receives your personal and financial data directly from the Department of Education. Your reported data is transmitted electronically to each institution.
Tip – Any time that there is an update or change to your FAFSA, a new SAR and ISIR will be produced and distributed accordingly.
Law obligates the federal government to verify eligibility for roughly thirty-three percent (33%) of all students who receive some form of federal financial aid. Colleges and universities are responsible for the verification process.
If you are verified, you will be notified accordingly by the institution that is completing the verification process.
Verification Worksheets most often contain a few questions that were also on the FAFSA. Families are asked to answer these questions and provide federal income tax returns and all associated W2s to substantiate the answers given on the student’s FAFSA.
Tip – The verification process is a common procedure and no need for alarm. In fact, colleges may also verify students at random, with some institutions even verifying all students who apply for funding.
CSS Financial Aid Profile (CSS/Profile)
In addition to the required FAFSA, approximately 250 of the nation’s selective colleges and universities also require the CSS/Profile from their prospective students.
The CSS/Profile is a more detailed version of the FAFSA and is required primarily by private institutions. You may check here to see if a college or university you are considering requires the CSS/Profile.
The CSS/Profile, like the FAFSA, is also an annual event and is available October 1st. The CSS/Profile may be completed online.
Like the FAFSA, the CSS/Profile’s internal formula (institutional methodology) also determines an Expected Family Contribution (EFC). The EFC from the FAFSA and Profile are different as they consider assets and income differently. There is much more detail later in this section regarding your EFC and how that figure becomes a part of a bigger formula to determine a student’s funding eligibility. Please refer to Colleges’ Funding Eligibility Formula below.
After you have been selected by the college or university for admission and they have had time to review your financial data that was collected through your FAFSA and CSS/Profile (if required), the institution will generate an Award Letter, which typically contains the type and amount of funding you are being offered, as well as, the institution’s total cost of attendance.
You will receive a separate Award Letter from each institution where you have been offered admission. Distribution of Award Letters often begins in February or March, but may take until April or May depending upon the institution.
Each Award Letter will commonly contain a combination of financial aid being offered by the federal government (loans and grants), as well as, funding being offered by the institution (scholarships, grants, tuition discounts and reductions, etc).
Tip – With your admission acceptance notification, the college or university may also include notification of awarded funding such as “Congratulations, you have won the Dean’s award.” This is basically a teaser offer and is not your official Award Letter. Your Award Letter will be more detailed and typically contains all government and institutional funding being offered, as well as, the institution’s total cost of attendance.
Colleges’ Funding Eligibility Formula
Award Letters may often-times be appealed, which is essentially a request for additional funding. In order to appeal, however, you must first have a basic understanding of how the institution arrived at their original funding offer.
As the financial data is received by the colleges; either through the FAFSA, CSS/Profile, or both, the institutions incorporate the EFC (generally taking the higher of the two if the Profile is required) into another formula which determines the student’s eligibility for need-based funding. That formula is basic:
Cost of Attendance (COA)
– Expected Family Contribution (EFC)
= Financial Need (eligibility for need-based funding)
Next, depending primarily on the resources (endowment funds) available, each institution will “meet” a different percentage of the student’s Financial Need. In other words, school A may meet one-hundred percent (100%) of the student’s Need, while school B may only meet seventy percent (70%).
Finally, each institution will then offer a percentage of the Need Met in gift aid (money that does not have to be paid back). Again, this percentage varies from institution to institution based on available resources (primarily each college’s own endowment funds). Once again, school A may offer sixty percent (60%) of the Need Met in gift aid, while school B may only offer thirty percent (30%). That formula is a little more complex:
Financial Need (eligibility for need-based funding)
x Percentage of Need Met
x Percentage of Gift Aid Offered
= Target Gift Aid (expected college contribution)
By using the formula outlined above and related statistics found within our Inside Track Data Center you can quickly determine if appealing a funding offer based on a lower than expected gift aid number is appropriate.
Tip – Please remember that the formulas outlined above are for determining need-based awards; for all intents and purposes, merit-based funding has no EFC. To enroll the most attractive students, colleges may, and will, offer funding to students regardless of the family’s income, assets, or EFC. It is vitally important, however, that the family explore both avenues (need and merit based) when applying for and securing funding for college.
In addition to the Low Gift Aid Appeal detailed above, there is also another instance when appealing your offer of funding would be appropriate. Information that has not been reported, or has changed dramatically since it was originally reported to the colleges is commonly referred to as Special Circumstances.
The most common examples of Special Circumstances:
- Student’s sibling attends a private school for a learning disability
- Family’s health care expenses are much higher than normal
- Family provides or pays for care for an elder relative
- Divorce or separation between the parents
- Death in the family
- Parent has lost their job
- Family has a bad credit history that will likely limit borrowed funds
- Parent retires
- Parents have another child
- Family’s home is damaged by fire, flood, etc.
If any of the above listed scenarios apply, it is very important to notify the schools. The financial aid officer may offer the student additional funding; they must first, however, know the reason why it is necessary.
You may notify the financial aid officer with a Special Circumstances letter that may either be mailed and/or hand delivered.
Admit / Deny
To help ensure their seats remain filled with the best blend of good students and paying customers, colleges commonly offer admission to four or five times as many students as they need each year.
These admitted students are generally divided internally by the institution into three basic groups, with the top group (the most attractive students) typically being offered the most lucrative funding packages. The middle and bottom thirds are generally offered less; in many cases, much, much less. In other words, the bottom two thirds of all admitted students fall victim to what is commonly referred to as Admit / Deny. Although offered admission, the student is not offered adequate funding to attend.
The biggest cause for concern with Admit / Deny is until your Award Letter is received and evaluated (refer to our Colleges’ Funding Eligibility Formula and Inside Track Data Center for details), there is no real way to determine in which group you have been placed by the institution.
Although you may still be able to attend the school, your family’s resources may very well be completely liquidated to fill the gaps left by the college’s slim funding offer. Keeping your options open by applying to six schools will help prevent Admit / Deny.
Each institution’s policies and procedures may vary slightly when it comes to the distribution of college funding.
Typically, the student’s awarded funding is received from the Federal Government and Private Sector by the institution and held in a student account. The institution first takes out the funds necessary to pay tuition, fees, and housing (most often in that order). The remainder of the funding is then made available to the student for fees, personal expenses, travel expenses, etc.
Funds are generally received and distributed before classes begin; however, at some institutions the distribution may NOT be completed until as late as three (3) weeks after classes have started.
It is a good idea to contact your school directly and inquire as to their policy of funding disbursement. It may be necessary for the student to have personal funds available to cover living expenses, fees, books, etc. prior to the distribution of their funding.