Understanding the two types of college financial aid
My family and I聽just returned聽from Charlotte, North Carolina, where my two boys competed in and won their first Jiu-Jitsu tournament.聽 On the ride home, one asked if he could get a college scholarship if he continued to win tournaments.
That reminded me how important financial aid is for most families. Almost all parents聽can benefit from聽understanding their options before their children apply.
Let鈥檚 explore the two different types of financial aid.
Need-based aid
Need-based financial aid includes federal loans, grants and work-study programs, in which students earn money through campus-based jobs. States may also provide need-based aid in the form of聽scholarships and grants.
The Free Application for Federal Student Aid, better known as聽,聽determines your family鈥檚 eligibility for need-based financial aid. Your family must submit one in order to receive federal aid from聽any undergraduate or graduate institution.
Some colleges require an additional form called聽the College Scholarship Service Profile (CSS聽Profile) to determine eligibility for nonfederal financial aid.聽The CSS Profile gathers much more detailed financial information than the FAFSA. Because of this, it might come to a different conclusion about the amount聽your family should pay toward your child鈥檚 education, or your expected family contribution (EFC).
For example, home equity on a primary residence isn鈥檛 counted under the federal methodology (FAFSA) but is partially included under the聽methodology.聽Other factors will also affect your EFC. For instance, having multiple children in college at once will reduce your EFC and thereby increase your aid eligibility.
To聽determine your child鈥檚 need-based aid eligibility, schools subtract your family鈥檚 EFC from the cost of attendance. The EFC the school uses will depend on which type of aid it鈥檚 awarding.
Just because your family qualifies for aid doesn鈥檛 that mean you鈥檒l receive it.聽A college doesn鈥檛 have to meet 100% of each student鈥檚 need, but most colleges do publish their percentages of need met on their websites. The more a college wants to admit your child, the more likely it is to offer a generous aid package,聽with more grants and scholarships than聽loans.
Because聽your family鈥檚 EFC remains constant, your child聽shouldn鈥檛 exclude聽聽from聽his or her college search. If your family鈥檚 EFC is $30,000, you鈥檒l聽receive no aid from a school that costs $30,000, but would be eligible for up to $30,000 worth of aid at a school that costs $60,000. Provided your聽student鈥檚 financial need was met with grants, your聽family would effectively pay the same price at both schools.
Merit-based aid
Students whose families don鈥檛 qualify for need-based aid can still receive merit-based aid.聽This type of aid is based on your child鈥檚 unique abilities, be they academic, athletic, musical or civic. It has nothing to with your families鈥� income or assets聽and聽generally comes in the form of聽, grants or tuition discounts 鈥� which means that it doesn鈥檛 have to be paid back.
Academic scholarships are the most common form of merit aid. They鈥檙e聽typically based on your child鈥檚 grades, standardized test scores (SAT and ACT scores)聽or聽class rank.
Many聽colleges publish their requirements for merit-based aid online so you can easily tell聽if your child qualifies. If his or her top choices don鈥檛聽publish this information, you can use聽websites such as聽聽to determine how your child鈥檚 academic profile compares with that of current students.
Understand your options
It鈥檚 not only world-class athletes and straight-A students who receive financial aid. That鈥檚 why it鈥檚 important for almost every college parent to understand the聽options available.
With the right college planning, you can聽save thousands of dollars in tuition costs.聽Ideally, your plan will include college selection, tax aid, and savings vehicles, and will consider how to best use your personal resources聽鈥� and help you pay for college without jeopardizing your other financial goals, such as saving for retirement.
Be proactive and start developing the best strategy to pay for your child鈥檚 education today.
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