Preparing for college can be both exciting and overwhelming, especially when it comes to figuring out how to pay for it. Fortunately, there are various types of financial aid available to prospective college students.
In this guide, we'll provide an overview of the different types of financial aid, key terms associated with financial aid and how to decipher a financial aid award letter.
Pell Grants are a type of federal aid awarded to undergraduate students who demonstrate exceptional financial need and have not earned a bachelor’s, graduate or professional degree. Pell Grants do not have to be repaid, except under certain circumstances.
Work-Study Programs - Work-study programs provide students with part-time jobs on campus. Students earn money to help cover the cost of attending college, and the money earned does not need to be repaid.
Loans - Loans are financial awards that must be repaid with interest. They can be awarded by the government (federal loans) or private lenders (private loans) and can be used to cover the cost of tuition, books, room and board and other expenses associated with attending college.
A federal loan is a form of student loan that comes from the government for education-related costs. Federal loans may be obtained through the FAFSA and may be subsidized or unsubsidized. There is also the option for parents of dependent undergraduate students and for graduate students to be awarded a Direct PLUS loan.
In contrast, a private student loan is a non-federal loan issued by a lender such as a bank or credit union. Private student loans often have variable interest rates, require a credit check and do not provide the benefits of federal student loans such as fixed interest rates, no credit checks, multiple loan repayment options and loan consolidation.
Understanding the key terminology associated with financial aid can help students make informed decisions about how to pay for college. In our glossary of terms, you’ll learn about what each of these important pieces of information means in relation to your educational and financial journey.
The cost of attendance is the total cost of attending college for one academic year. This includes tuition, fees, room and board, books and other expenses. This figure is used solely for the determination of financial aid and does not represent a figure you will owe your university.
The expected family contribution is the amount of money that a student's family is expected to contribute to the cost of attending college. The EFC is calculated based on data from the FAFSA including data relating to the family's income, assets and other factors.
Financial need is the difference between the cost of attendance and the expected family contribution. If a student's financial need is high, they may be eligible for more financial aid. Sometimes a student loan or scholarship may be awarded independently of financial need.
The federal financial aid processor determines your individual family’s ability to contribute to the cost of your education using the information you provide on the FAFSA. This figure is used solely for the determination of financial need and does not represent a figure you will owe to attend a college or university.
The formula they apply is referred to as “federal methodology.” After receiving your EFC from the processor, a university will then subtract that EFC from the Cost of Attendance. In essence, the formula is Cost of Attendance-EFC=Financial Need.
The FAFSA is a form that students must fill out in order to be considered for federal financial aid, including grants, loans and work-study programs. The FAFSA asks for information about the student and their parent or guardian’s income, assets and other financial and familial factors. This information is sent directly to your university, which will then create your award package (see information on the financial aid award letter).
The FSA ID is a unique identifier a student creates when preparing to apply for federal financial aid. The FSA ID can be used to sign the FAFSA electronically, drastically decreasing the processing time.
Merit-based aid is financial aid that is awarded based on the student's academic or other achievements (GPA, test scores, etc.). Scholarships are an example of merit-based aid.
Need-based aid is financial aid that is awarded based on the student's financial need (see financial need definition above). Grants and work-study programs are examples of need-based aid.
Your school will determine how much aid you are eligible to receive; however, there are limits on the amount of subsidized and unsubsidized loans you can receive annually. This limit is referred to as the total aggregate loan limit. Loan limits are as follows:
Undergraduate Dependent Students: $31,000 (no more than $23,000 of which can be subsidized)
Undergraduate Independent Students: $57,500 (no more than $23,000 of which can be subsidized)
Graduate and Professional Students: $138,500 (no more than $65,500 of which can be subsidized)
Once a student has applied for financial aid and been accepted to a college or university, they will receive a financial aid award letter. This letter outlines the types and amounts of financial aid that the student has been awarded.
Understanding the information in a financial aid award letter can help you make an informed decision about how to pay for college and what the impact of your decisions might mean for your long-term financial future.
Here are some of the key pieces of information to look for in a financial aid award letter:
Types of Aid - The financial aid award letter should list the types of aid that you have been awarded, such as scholarships, grants, work-study and/or loans. Be sure to look carefully at what kinds of financial aid you’re being awarded and use this guide to help you break down some of the notable differences between aid types.
Aid Amounts - In addition to determining the types of aid you’re being offered, you’ll want to take notice of the aid amounts. The financial aid award letter should list the amount of each type of aid that you have been awarded, which can help you clearly identify where the bulk of your aid is coming from and what you may be expected to pay back.
Being financially literate is an asset that can help you in both your educational journey and personal life. At Franciscan Missionaries of Our Lady University, we strive to ensure our students feel empowered to make financial decisions with knowledge and confidence.
To learn more about FranU’s financial literacy resources, visit the Financial Literacy page, where you’ll find access to courses, events and resources that can help you navigate paying for your education and managing your personal finances.