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Decoding Financial Aid: Making Sense of All the Financial Aid Jargon 

Friday, October 12, 2007

If you've started down the path of figuring out how to pay for college, you've probably been bombarded with words like EFC, COA, Unmet Need, and more. Is the assortment of financial aid acronyms and terms making your head spin? Well, hopefully we can help shed some light on all the alphabet soup of financial aid lingo and show you how all these financial aid terms fits together.

First, let's start off with the least enjoyable aspect of the college process... paying the bill. The COA, or Cost of Attendance, represents the total amount it will cost you to attend college. This number is expressed as a yearly figure. The COA includes:

  • Tuition and fees
  • On-campus room and board or a housing and food allowance for off-campus students
  • Allowances for books, supplies, transportation, and loan fees

In addition to the above, cost of attendance may include the following (if applicable):

  • Dependent care (this may be for students who have children)
  • Costs related to a disability
  • Miscellaneous expenses, including an allowance for the rental or purchase of a personal computer
  • Reasonable costs for eligible study-abroad programs

Fortunately, most students and parents are not expected to pay the entire Cost of Attendance right away out of their own pockets. The federal government uses the FAFSA (Free Application for Federal Student Aid) and many schools use the CSS Profile to determine the Expected Family Contribution (or EFC). The EFC is basically an assessment of how much money you and your family can contribute toward paying for college. The FAFSA and CSS Profile take into account your income and assets and, if you are a dependent, the income and assets of your parent(s).

Your financial need is the difference between the COA and the EFC. It's the help that you need to fill the gap between what you can afford and what college actually costs.

 Cost of Attendance
Expected Family Contribution
 Financial Need

This brings us to financial aid. Financial aid is typically focused on addressing your financial need, helping you and your family bridge this gap between the cost of going to college and your family's ability to pay.

Financial aid can be broken down into 3 main categories.

  1. Scholarships / Grants
    Scholarships are the most attractive form of financial aid. Scholarships are essentially financial aid that does not have to be repaid. Scholarships are sometimes referred to as gift-based aid.
  2. Loans
    Loans are basically financial aid which must be repaid with interest over a period of time. Loans help you spread the cost of college over a more manageable time frame. Government sponsored loans, which include Perkins, Stafford, and PLUS loans, are typically the lowest cost loans for you and your parents.
  3. Employment / Work Study
    Work study is financial aid which requires you to work while attending school to contribute toward the cost of education. While, yes, it does requires you to work, work study or other employment may offer additional benefits to you over other forms of financial aid. You will likely develop improved time-management skills and build up good experience for your resume.

Now that leads us to the last term we're going to cover... Unmet Need. This is the leftover portion of your financial need after your financial aid package is factored in.

 Financial Need
Financial Aid
 Unmet Need

Some schools will try to cover all your financial need leaving you with no unmet need. A few colleges that make this effort include Harvard, Bucknell, and Franklin and Marshall. However, the financial realities of most colleges make it difficult for them to meet all your financial need. In this case, you might need to resort to private loans to cover your unmet need. We recommend that you consider all available options, including searching for scholarships and getting a part-time job, before you take on significant student loan debt. Remember, loans aren't free. You'll have to pay this money back (with interest) when you graduate.

We hope we've helped bring a little clarity to the jumble of terms you're running across as you look into ways to finance your college education.

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