Need-based aid refers to financial aid used to fill the gap between the cost of college and the amount the parents are expected to pay for college. Your cost of attendance (COA) minus your expected family contribution (EFC) equals your Demonstrated Need. Any aid used to fill the need is "need-based aid." Need-based constitutes by far the lion’s share of available financial aid for college. To qualify for need-based aid, students and parents will have to complete a federal form called the Free Application for Federal Student Aid (FAFSA). Some colleges will also request a second form called the CSS PROFILE produced by the College Scholarship Service, which is part of the College Board.

When you complete the financial aid forms, you list financial and other information and submit the form to a processing center that will calculate the amount your family will be expected to pay for one year of college, known as the EFC. Because of slightly different formulas, the FAFSA will usually produce a lower EFC than the PROFILE.

Non need-based aid. is aid offered that is not tied to demonstrated need. Merit Scholarships or any scholarship offered for any other reason that is not specifically tied to need is non-need based aid. They are typically competitive, sometimes require an essay or other documentation, and may be based on a religious affiliation, a specific talent, intended career or other attributes.

Non-need based scholarships are difficult to come by. Some schools may reduce your need-based eligibility if you receive any non-need based funding. On the positive side, there is a growing trend by colleges to recruit stronger applicants by offering renewable (given every year) grants that are primarily merit based. It sometimes pays to be an outstanding applicant to a less-selective college than just another terrific candidate to a very selective college.

Loans can be non-need based as well. Unsubsidized Stafford Loans are considered non-need based aid, as anyone who files the FAFSA can take one out. Remember that interest accrues on these loans while the student is enrolled although no payments are required during attendance. Parent loans (Federal PLUS) are sometimes offered by colleges as need-based aid, but they aren’t: anyone can get a PLUS loan regardless of need (but keep in mind PLUS loans require the absence of negative credit for the parent applicant).

How the EFC fits into the financial aid picture:

First, you need to know the actual cost of college, not just what’s listed for tuition and fees. Research the college costs by looking for the “cost of attendance (COA)” or “student budget. " This is usually much larger than the tuition. It includes room and board, books and supplies, fees, and personal expenses. Colleges usually have multiple student budgets, such as:

These budgets may be based on what the school defines as your dependency status.

For the sake of illustration, let’s list three generic Costs of Attendance:

Let’s now assume a student has completed a FAFSA and his EFC was $10,000. The student was accepted to a state university, a private college and an elite college. This is what the next step in the financial aid process would look like:

Note: the EFC remains the same regardless of what the college costs!

The current maximum amount a student can use every year is:

Independent students and graduate students can borrow much more. The rate has been changing annually for undergraduates, but can be no greater than 6.8%. If the loan is subsidized, the student will not have to begin to pay back the loan until six months after he/she is enrolled at least half-time. Typically this is graduation! There are many ways to tailor a repayment plan to match the student’s financial situation following college. For more details, see SimpleTuition’s Paying for College Guides.

Unsubsidized loans
Any student meeting the federal requirements, even if he/she cannot demonstrate financial need, can use these loans. Every undergraduate can borrow an additional $2,000 over the annual loan limit listed above in unsubsidized loans. If you do not qualify for some or the entire subsidized loan, then you can borrow up the annual loan limit in unsubsidized loan funds plus the $2,000.

Since repayment can be problematic for a student in college, the loan assumes that no payment will be made until after the student leaves school. However, interest accrues while in college and in repayment. One advantage of student loans is that the interest paid is tax-deductible if you meet the income threshold. Some colleges have their own loan programs, which have better or even zero rates of interest.

In addition to the Stafford or Direct loans, there is another loan called the Perkins Loan that is often used for needy students. The maximum Perkins loan is controlled by the government and is typically $6,000 annually for undergraduates. The interest rate has historically been 5% and repayment begins 9-months after college. Payback of a Perkins loan is usually done through the college.

Some colleges have their own loan programs, which may have better (or even zero) interest rates.

Loans and work/study are considered to be "self-help" aid in that the student is required to shoulder some tangible responsibility in the form of either actual labor or in terms of paying back a loan with interest.

Many colleges make their own grants. While most are need-based, an increasing proportion is used as an incentive to "attract" highly qualified students in the same way colleges recruit applicants. These grants can be substantial and can be extended for all four years.

Remember that external organizations such as community-based, religious, or professional organizations may have outside scholarships available. These may have a separate application processes and filing dates.

Congratulations, you are in! Along with an acceptance letter, a college will provide a newly-admitted student with an estimated financial aid award for those who completed the financial aid forms. The award offer should contain the following information:

The total cost of a year’s attendance at college (COA) or Student Budget.

For example, the COA is $42,000.

Next, the college often provides you with a statement of what the family will be expected to contribute. Many times this is broken out into "Contribution from the student" and "Contribution for the parent(s)." It might look like this:

They will then subtract the EFC from the cost of college to determine eligibility for aid or:

This is a great award. It balances self-help aid and free money and, most importantly, it meets the entire need. Do colleges always meet 100% of the financial need? No. Sometimes schools do not award the entire annual loan limits to reduce the loan burden post enrollment. Others may have maxed out all the federal and state aid and may not have additional “free money” to help meet your expenses. In such cases, the student and their family should weigh financing options. See SimpleTuition’s College Cost Adjuster to consider these options.

Have you had a friend receive a scholarship, but, he or she said that they are getting less aid now because of it? Why is that? Federal regulations have specific requirements that prohibit “over-awarding” of financial aid. If all sources of a student’s financial aid package exceed the school’s cost of attendance, the financial aid office must reduce the aid package until it falls below this threshold.

Schools have policies that determine which aid is reduced. Some schools try to ensure that students receive the most benefit from external scholarships by reducing student loan and work-study amounts. Other schools replace previously awarded institutional grants and scholarships with the external scholarship so that other students may benefit from the institutional aid. Many schools policies lie somewhere in between these polar opposites.

Ask the school financial aid office how they treat outside scholarship awards. Don’t get discouraged about applying for scholarships based on the policies. Even though scholarships may reduce the amount of federal, state, and other financial aid they receive from their schools, you will benefit from more “free” money toward college costs.

College funding is essentially a two-part problem. In part one you must understand the Expected Family Contribution and how to minimize it. In part two you must figure out how to deal with costs not covered by financial aid. In other words, now that you know what college costs, how will you pay for it?

TuitionCoach will walk you through the entire process, step by step. By the time you are done you will feel confident you have lowered the cost of college, and made intelligent choices about how to pay for it. You will be able join with your children in an unconditional celebration of their achievements thus far. Together you can look forward to a future that provides all the life opportunities their interests and talents demand.