The Funding Process
Free Application for Federal Student Aid (FAFSA)
The FAFSA is required from all students who are applying for college funding. Due to the fact that funding for college is secured one year at a time, the FAFSA is filed annually.
The FAFSA is the Federal Government’s Financial Aid Application. It helps determine how much the family should contribute towards the cost of the student’s education each year. This amount is called the Expected Family Contribution, or EFC. The Federal Government uses a formula called "Federal Methodology" to determine the family’s EFC.
Factors Involved in the Federal Methodology Formula
Income and Related Data – The parent’s and student’s Adjusted Gross Income (AGI) are factored into the FAFSA formula. The number of people in the student’s household, the number of students in the family that will be attending college during the year, the amount of Federal income taxes paid, and amounts contributed to retirement plans are just a few examples of other factors involved in the formula. Adjusted Gross Income effects the EFC much like earned wages and miscellaneous income effect Federal income taxes.
Assets – It is important to know that there are assets that are assessable (counted) and those that are not assessable (not counted) in the Federal Methodology Formula. These non-assessable assets can be equated to a tax deduction on your Federal Income Tax Return. By positioning as many assets as possible into the non-assessable column, your family’s EFC will often be lowered.
In addition to the Federal Methodology Formula, many institutions also have their own formula for calculating the EFC. This is appropriately named "Institutional Methodology." The Institutional Formula is very similar to the Federal Formula; however, the Institutional Formula will often include assets not reported on the FAFSA (life insurance cash values and home equity – for example) when computing the family’s EFC.
CSS/Profile Financial Aid Application
Approximately three-hundred (300) of the nation’s selective colleges and universities ALSO require the CSS/Profile Financial Aid Application in addition to the FAFSA. The CSS/Profile is a more detailed version of the FAFSA and assists the institution in gathering additional financial information.
Mainly private institutions use the CSS/Profile and the Institutional Methodology Formula. These schools may recalculate and assign the family a new (different) EFC. Generally, the more expensive the school, the more funding they have available. Therefore, the institutions want to know more specific details about what the family is able to contribute before funding is offered.
In a great number of cases, the private institution has much more gift money to award than a public school. This is why a seemingly more expensive private school may actually be the same price, or less, than a state-funded school.
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Determining Your Financial Need
Institutions are responsible for distributing the Federal Government's funding, as well as their own endowment funds. Institutions will commonly deduct the EFC from their total Cost of Attendance (COA) and the balance is referred to as the student's financial need. Note - Tuition, fees, room and board, books and supplies, transportation allowance, and miscellaneous personal expenses often make up the COA.
Historically, each school will meet a different percentage of the student’s need. In other words, if the student’s need is $20,000, School "A" may meet 100% of that need, while school "B" may meet only 60% of the student’s need. The amount of need that the institution meets is based primarily on the amount of funds the institution has available. This is why private institutions (with larger endowment funds) commonly meet a greater portion of the student’s need than public (state-funded) schools.
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Gift Aid / Self-Help Aid Ratio
In addition to meeting a percentage of the student's financial need, each institution will give a percentage of the need they meet, and the remaining portion of the awarded funding will be either borrowed or worked for. The ratio between "gift" money and "self-help" money can vary greatly from school to school. School "A" may gift sixty, seventy, or even eighty percent or more, while school "B" may gift as little as fifteen or twenty percent.
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How the Process Unfolds
Families sometimes think that the Free Application for Federal Student Aid (FAFSA) is the end of the financial aid process, when actually it is only the beginning.
It’s generally best to complete a FAFSA early in January containing estimated income figures and actual (current) asset figures. This will put the student towards the front of the line for funding and ensure that deadlines are met. The FAFSA must then be updated to include the current year’s tax information (income figures) after the family completes their Federal Income Tax Returns.
Student Aid Report (SAR)
The FAFSA generates a Student Aid Report (SAR) and also provides the colleges and universities with an Institutional Student Information Report (ISIR). The ISIR contains the results of the FAFSA and the student’s eligibility for need-based funding. After the institution has received and evaluated the ISIR and the student’s admission application and other related financial aid applications, the student is then sent an Award Letter from each institution where he or she has been accepted for admission.
College Award Letter - Offer of Funding
The original Award Letter generally contains the institution’s total cost of attendance (COA), along with the funding being offered by the Federal Government and the institution itself. Any funding a student has been awarded by private-sector scholarship sponsors is generally not included in the original Award Letter.
Award Letters may be distributed by institutions as early as March, and as late as June or July of the student’s high school senior year.
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Nearly all financial aid packages are made up of a combination of "gift" money and "self-help" money. Gift money is money that is given to the student, and self-help money is money that is either borrowed or worked for. It is also important to know that simply because a student may be eligible for, or entitled to, gift money, does not mean that all institutions will necessarily offer this type of funding.