The latest version of the Free Application for Federal Student Aid (FAFSA) was released October 1. Have you filled it out yet? Colleges use this form to establish your family’s eligibility for funding to help pay for college, so it’s in your best interest to apply and to do so as early as possible.
To help you demystify student aid, we brought in Carey Thompson, Vice President for Enrollment and Educational Services at Gettysburg College in Gettysburg, Pennsylvania, as our guest expert on College Prep Conversations.
Thompson described the two types of financial aid, how they work, and the philosophy behind them so that you can make a well-informed evaluation of your options.
Watch the replay or keep reading for a summary of the basics.
The Two Types of Student Financial Aid
The two types of student financial aid are need-based aid and merit-based aid.
Need-based aid, also called financial aid, is awarded based on a family’s financial situation, as determined by the FAFSA and, where applicable, the CSS Profile. A family’s capacity to pay for college, known as the Expected Family Contribution (EFC), is subtracted from the cost of education to determine a family’s need.
Thompson explains it this way:
“Let’s say institution X is an $80,000 a year institution. And let’s say your family’s EFC is $50,000 a year based on the FAFSA and the CSS Profile. Your family has a demonstrated need of $30,000.”
Colleges are not obligated to meet your financial need, but if you’re a student they want at that school, it’s in their best interest to do all they can to make it possible for you to attend.
Thompson also notes, “If the cost of attendance in this particular scenario was $50,000, your EFC doesn’t change. And in that scenario, you have $0 demonstrated financial need.”
The other type of aid is merit-based.
Merit-based aid, also called scholarship, is awarded to the student based on their academic achievement, character, talents, and so on.
A student can get both types of aid, one, or neither, depending on individual circumstances.
Let’s talk about finding funding for both types of aid.
Sources of Financial Aid
Thompson covered three sources of need based aid: institutional grants, federal grants and loans, and federal work-study programs.
Institutional grants come directly from the college’s funds and are based on demonstrated need. They can range from a few hundred to tens of thousands of dollars, depending on the institution.
Federal grants, such as the Pell Grant, are provided to exceptionally low income students who might not otherwise be able to afford college. Also consider State grants if you’re looking at colleges in your home state.
Other sources of funding include Federal loans, such as the Stafford, which is a student loan, and the PLUS, which is a parent loan based on creditworthiness, as well as Federal Work-Study jobs.
Thompson adds this important advice: “Students, you need to understand loans, and you need to understand work-study. You need to account for that and keep that in mind. If you’re awarded federal work-study, guess who’s working?”
With merit-based aid, or scholarships, a lot depends on the college’s competitive pool and “the talents and abilities of the student relative to that pool,” says Thompson. “The larger the scholarship, the more competitive it’s going to be to receive it. So that’s a reasonable question to ask a given college, what that looks like in their context and how you might measure up in that context.”
Another thing to keep in mind is that “merit aid will typically fill financial aid first, if there is need. So if you’re that family with $30,000 of need that we talked about a little while ago, and we offer you a $25,000 merit scholarship, that $25,000 will be applied against that $30,000 need. That’s where we start. Congratulations, you got a great scholarship! And then we’ll fill in the other $5,000, and maybe exceed it, depending on circumstances.”
There are many scholarships out there that you don’t have to do anything other than apply for admission to be considered for. We love those! But there are also highly competitive and selective scholarship programs associated with specific colleges that have a completely separate application process. At Stodghill College Consulting, we can help you sort that out along the way.
The Bottom Line
If you’re wondering if you should file the FAFSA or not, remember that by not filing, you’re saying you don’t want financial aid. “So if you think you might need money,” Thompson says, “I’d apply.”
For a thoughtful perspective on sorting through financial aid and what’s more important than finding the cheapest deal, watch the replay of our College Prep Conversation with Carey.