Understanding Financial Aid 101 – The Basics
There seems to be a lot of confusion when it comes to financial aid. Most of the families we talk to assume they will receive no financial aid what so ever, but the overwhelming reaction we hear is just plain confusion how the whole process works. The entire college process is a confusing and daunting one. It seems to us that there is a lack of general understanding of the process. There are plenty of articles about the nitty gritty details but very little on the basics. It is like going into PhD studies before every getting a Bachelor’s degree. So, in this post we are going to keep it very basic. Let’s call this FASFA 101, once you pass this class you can move into your more advanced studies.
Most likely if you are talking about financial aid, the following 5 letter acronym is buzzing around your head, FASFA. This is the Free Application for Federal Student Aid. Parents and students should complete this application to begin the qualification process. After submitting the applications, states and colleges use that information to determine your eligibility for aid.
But what does that all mean? What is FASFA really looking at and how do they calculate my eligibility? While there is some mystery to the entire process, it comes down to the following simple calculation.
Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Aid Eligibility
Cost of Attendance (COA) is simply the annual costs of the college. This includes tuition and fees, room and board, books, supplies, transportation, and more.
Expected Family Contribution (EFC) is the amount that FASFA calculates as to what you can contribute towards college expenses. While this is a complex calculation which is governed by law you can loosely calculate the amount with the following numbers:
|
Parents |
22%-47% of available after tax income |
0% to 5.64% of assets, including 529 accounts, bank accounts, CDs, mutual funds, and other securities* See note on what is not included |
|
Child |
50% of Adjusted Gross Income over $6,420 for 2017-2018** |
20% of assets held in the child’s name, including bank accounts, CDs, savings, bonds, and UGMA/UTMA accounts and minor trusts not held in a 529 plan. |
*Investments do NOT include the home in which you (and if married, your spouse) live; cash, savings and checking accounts; the value of life insurance and retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.). As found on https://fafsa.ed.gov/fotw1617/help/fotw33c.htm
**Income Protection Allowance
Financial Aid Eligibility is the result of subtraction those two numbers and is comprised of loans, grants, scholarships, and self-help. The current federal student aid programs are:
Federal Pell Grant
Federal Supplemental Educational Opportunity Grant (FSEOG)
Direct Subsidized Loan
Federal Perkins Loan
Federal Work-Study
Once those are maxed out, you can still qualify for non-need based aid which is simply your COA minus the financial aid awarded so far (amount received in the above category plus any scholarships). This amount can be funded through the following:
Direct Unsubsidized Loan
Federal PLUS Loan
Teacher Education Access for College and Higher Education (TEACH) Grant
Throw these calculations you should be able to get a rough idea of what you may or may not qualify when going into the financial aid process. We think it is important to have a high level of understanding on how everything works. Then you can apply your personal situation and move into the nuances that may affect you.
For more information on the FASFA formula visit:
https://studentaid.ed.gov/sa/sites/default/files/2017-18-efc-formula.pdf
and
https://studentaid.ed.gov/sa/fafsa/next-steps/how-calculated
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.