Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
Learning financial aid is like speaking a foreign language: financial need, financial aid, need, and more.
There is an alphabet soup of different words and acronyms. You may think you understand the chatter, but it's easy to get confused. A misunderstanding of terminology can place students in a trap that may lead them to enroll in an unaffordable college.
Learn what the terms “financial aid” really mean and what to look for so you know what to expect when you apply to college.
What is financial support?
There is financial support and then there is financial support.
Financial support is money to finance your studies. But it comes in many types. Some species are more valuable than others. There are three main types of financial support.
Gift Help. Gift aid is free money, such as grants and scholarships, that does not need to be earned or repaid. Examples include Federal Pell Grants and private scholarships.
Student employment. Student employment is money earned by the student as payment for their work on or off campus.
Student loans. A student loan is borrowed money that usually has to be paid back with interest. Examples include the Federal Direct Stafford Loan, the Federal Direct PLUS Loan, and private student and parent loans.
Student employment and student loans are sometimes collectively referred to as self-help.
Financial aid comes from a variety of sources, including the federal government, state government, colleges and universities, as well as private companies, foundations and associations. and employers.
Related: Find scholarships and grants by state
Financial necessity vs. merit
Financial need is the difference between the total annual cost of college and the family's ability to pay for a year of college. Please note that this is not the total cost of the course, but rather the difference between the costs and the ability to pay.
Financial needs = tuition costs – ability to pay
Ability to pay is calculated by the Free Application for Federal Student Aid (FAFSA) as the Student Aid Index (SAI), formerly known as the Expected Family Contribution (EFC). The SAI is a measure of the family's financial strength. It is based on income, wealth and demographic factors.
The entitlement to needs-based financial assistance depends on financial need. One way to demonstrate greater financial need is to have a lower SAI. The other option is to enroll in a more expensive university. Wealthier students may be eligible for need-based financial aid at a higher-cost college, while they may not be eligible for need-based financial aid at a lower-cost college.
Some forms of financial assistance are based on merit rather than financial need. Some are based on a combination of merit and need.
Grants are funds awarded based on financial need, while scholarships are typically awarded based on academic, artistic or athletic ability. However, sometimes the terms are used interchangeably.
Some private scholarships with a need-based component are based on the student having an SAI or family income below a certain threshold.
How will financial needs be met?
Most colleges offer a financial aid package that covers all or part of a student's financial needs. This is done through a combination of gift aid, student employment and student loans.
Very few colleges meet a student's entire demonstrated financial need, even with loans.
Many colleges leave students with a gap between financial aid and financial need. 60% of students at 4-year colleges are left with unmet need when counting student loans as a need, and 75% when only grants and scholarships are counted as a need. At the most selective and wealthiest colleges, these averages only fall by about 3 percentage points.
Only 82 universities say they are meeting full demand, including five that meet the full need for first-year students only. Of the colleges that meet full need, 43 have a “no loans” financial aid policy, which replaces loans with grants in the financial aid package. For the others, loans are included in the financial aid package.
However, this does not mean that they meet all of the need as defined by the federal government. 71 of these colleges are effectively redefining financial need by using the CSS profile (instead of the SAI) to calculate financial need. The CSS profile typically shows lower need when it takes into account additional forms of income such as student income and non-custodial parent income. Most have one Minimum student contribution or Summer work expectation This limits the definition of financial need. They then claim to meet financial needs according to this reduced definition of financial needs.
This is why it is important for families to compare college costs based on the net price. The net price is the difference between the total annual tuition costs and the pure gift aid. This is the amount the family must pay from savings, income and student loans. It's the actual final cost of college, a sort of discounted sticker price.
Other metrics such as the amount of grants, the percentage of financial aid provided by grants, and the percentage of tuition costs covered by grants are misleading. A college with higher costs may provide more grants, but still have a higher net price.
You may actually pay more at a college that claims to meet full need than you would at a state public college, although many full need colleges are among the more generous colleges.
Be wary of colleges that report net cost, where the entire financial aid package, including loans, is deducted from the total cost of the college. This does not correspond to the net price.
Needs-blind vs. needs-based approvals
Students and their families often wonder whether applying for financial aid will affect their chances of being admitted to college.
Only 102 colleges claim to offer this need-blind admission for US students. They accept students without considering whether they are able to finance their studies. Of these, only 78 allow need-independent admission for transfer students and 26 allow need-independent admission for international students. Most of these universities are not need-blind when it comes to removing students from the waiting list.
The rest typically start thinking about financial necessity once they've accepted about three-quarters of the new class and are transferring needs-based intake when they run out of money in the financial aid budget.
Related: Undermatching: Why don't smart, low-income students enroll in selective colleges?
Other Pitfalls of Financial Aid
There are other ways college financial aid packages mislead families about the true cost of college, beyond simply meeting unmet needs and redefining financial needs. These include the early provision of grants and the crowding out of scholarships.
More than 80% of colleges practice pre-award grants, with students being offered a better mix of grants and loans in their first year than in subsequent years. This is a kind of decoy offer in which the university appears to be cheaper when students apply for admission.
The The net price of these universities will increase significantly after the first year, even if the family's financial circumstances have not changed. A larger portion of college costs are covered by loans and the gap is widening. On average, the net price increases by about $3,000 to $4,000.
Families may mistakenly believe that scholarships can help them cover their share of college costs. However, sometimes scholarships reduce the need-based financial aid package, e.g. B. Grants that you have already received. This is known as scholarship crowding out. Around half of all scholarship holders say they are affected by scholarship displacement.
Six states have enacted laws prohibiting scholarship displacement: California, Maryland, Minnesota, New Jersey, Pennsylvania and Washington.
Final thoughts
Don't try to game the system by not applying for financial aid in the first year. You may be able to pay full tuition for one year, but that doesn't mean you can apply for financial aid in subsequent years. Most need-based colleges will not provide their own grants to students who have not applied for financial aid in their first year unless they can demonstrate that their financial circumstances have changed significantly.
In other words, don't try to game the system when the dealer has all the cards. If you are unsure about which financial aid offer you received, consider submitting it to TuitionFit and see how it compares to the school's other financial aid offers for similar students.
Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
