How Does Need-Based Financial Aid Work?

Professor office hoursThe idea of receiving financial help to go to college is so alluring that every year, millions of students and their families apply for need-based student loans and grants to finance higher education, all in the hope that their case for receiving financial aid is good enough. But many of the applicants do so without an understanding of how need-based financial aid works, or they may be so intimidated by the process that they don’t apply at all.

What Is Need-Based Financial Aid?

Understanding how need-based financial aid works starts by defining it. Simply put, need-based financial aid refers to loans, grants, and awards that are offered to students (and their families) who cannot afford to enroll in college or university on their own budget. It is different from merit-based financial aid, which rewards students for outstanding work in high school or community service by offering a discount on college tuition costs. Need-based financial aid does not take high school grades into consideration.

How Does Need-Based Financial Aid Work?

What are your financial aid options?As an example of how need-based financial aid works, Yale University explains that it calculates the level of financial need it provides eligible applicants by a simple formula: take the cost of attendance, subtract the family contribution, and whatever figure remains is the amount of financial aid that Yale will provide.

Here, as in most cases, “cost of attendance” encompasses tuition, room and board, books and supplies, and other eligible expenses that directly pertain to the student being able to attend the school. Different institutions can have slightly different definitions of what constitutes “eligible expenses” – for example, some may offer to cover travel and transportation costs, while this may not be an option at other schools.

The family contribution figure comes from the Expected Family Contribution amount that is calculated on the student’s FAFSA. US News & World Report explains that an EFC is what a school expects a family to pay for one year of their child’s college attendance.

The EFC is arrived by adding the following variables:

For example, if a family’s EFC is $24,000 for a school with a cost of attendance of $52,000, the potential financial aid award would be $28,000. The Department of Education explains that the EFC is not the amount of money your family will have to pay for you to go to college; rather, your school will use your EFC as one of the factors in deciding how much financial aid you might receive.

In that context, it may be helpful to think of an EFC as a guide in the overall calculation of need-based financial aid, as opposed to a definite dollar amount that your family will pay for you go to school.

More Information About Need-Based Financial Aid

It’s tempting to think that simply needing money to go to school will lead to financial aid, but the picture is much bigger than that. Fortunately, we have information and resources on our website to give you the information you need on how to finance your higher education. Keep browsing to learn more.

 
Need a private student loan? Compare your student loan options all in one place. SimpleTuition


FAFSA Topics